Correlation Between Sp 500 and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Sp 500 and Vanguard 500 at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Sp 500 and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Index and Vanguard 500 Index, you can compare the effects of market volatilities on Sp 500 and Vanguard 500 and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Sp 500 with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Vanguard 500.
Diversification Opportunities for Sp 500 and Vanguard 500
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SPFIX and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Index and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Sp 500 is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Sp 500 Index are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Sp 500 i.e., Sp 500 and Vanguard 500 go up and down completely randomly.
Pair Corralation between Sp 500 and Vanguard 500
Assuming the 90 days horizon Sp 500 Index is expected to under-perform the Vanguard 500. In addition to that, Sp 500 is 3.31 times more volatile than Vanguard 500 Index. It trades about -0.1 of its total potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.33 per unit of volatility. If you would invest 52,688 in Vanguard 500 Index on September 1, 2024 and sell it today you would earn a total of 2,775 from holding Vanguard 500 Index or generate 5.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Sp 500 Index vs. Vanguard 500 Index
Performance |
| Timeline |
| Sp 500 Index |
| Vanguard 500 Index |
Sp 500 and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and Vanguard 500
The main advantage of trading using opposite Sp 500 and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 position performs unexpectedly, Vanguard 500 can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard 500 will offset losses from the drop in Vanguard 500's long position.| Sp 500 vs. Sp Midcap Index | Sp 500 vs. Sp Smallcap Index | Sp 500 vs. Deutsche Equity 500 | Sp 500 vs. Dreyfus Institutional Sp |
| Vanguard 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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