Correlation Between Vanguard Materials and Global X
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and Global X 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 Vanguard Materials and Global X into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Materials Index and Global X Lithium, you can compare the effects of market volatilities on Vanguard Materials and Global X 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 Vanguard Materials with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Global X.
Diversification Opportunities for Vanguard Materials and Global X
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Global is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Global X Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Lithium and Vanguard Materials 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 Vanguard Materials Index are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Lithium has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Global X go up and down completely randomly.
Pair Corralation between Vanguard Materials and Global X
Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 0.55 times more return on investment than Global X. However, Vanguard Materials Index is 1.82 times less risky than Global X. It trades about 0.05 of its potential returns per unit of risk. Global X Lithium is currently generating about -0.03 per unit of risk. If you would invest 17,142 in Vanguard Materials Index on August 28, 2024 and sell it today you would earn a total of 4,160 from holding Vanguard Materials Index or generate 24.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Materials Index vs. Global X Lithium
Performance |
| Timeline |
| Vanguard Materials Index |
| Global X Lithium |
Vanguard Materials and Global X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Materials and Global X
The main advantage of trading using opposite Vanguard Materials and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials position performs unexpectedly, Global X 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 Global X will offset losses from the drop in Global X's long position.The idea behind Vanguard Materials Index and Global X Lithium pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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