Correlation Between Vanguard Materials and Vanguard Consumer
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and Vanguard Consumer 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 Vanguard Consumer 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 Vanguard Consumer Staples, you can compare the effects of market volatilities on Vanguard Materials and Vanguard Consumer 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 Vanguard Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Vanguard Consumer.
Diversification Opportunities for Vanguard Materials and Vanguard Consumer
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Vanguard and Vanguard is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer Staples 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 Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer Staples has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Consumer go up and down completely randomly.
Pair Corralation between Vanguard Materials and Vanguard Consumer
Considering the 90-day investment horizon Vanguard Materials is expected to generate 4.31 times less return on investment than Vanguard Consumer. In addition to that, Vanguard Materials is 1.31 times more volatile than Vanguard Consumer Staples. It trades about 0.03 of its total potential returns per unit of risk. Vanguard Consumer Staples is currently generating about 0.17 per unit of volatility. If you would invest 21,511 in Vanguard Consumer Staples on August 27, 2024 and sell it today you would earn a total of 512.00 from holding Vanguard Consumer Staples or generate 2.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Materials Index vs. Vanguard Consumer Staples
Performance |
| Timeline |
| Vanguard Materials Index |
| Vanguard Consumer Staples |
Vanguard Materials and Vanguard Consumer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Materials and Vanguard Consumer
The main advantage of trading using opposite Vanguard Materials and Vanguard Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials position performs unexpectedly, Vanguard Consumer 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 Consumer will offset losses from the drop in Vanguard Consumer's long position.The idea behind Vanguard Materials Index and Vanguard Consumer Staples 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.| Vanguard Consumer vs. Vanguard Consumer Discretionary | Vanguard Consumer vs. Vanguard Utilities Index | Vanguard Consumer vs. Vanguard Industrials Index | Vanguard Consumer vs. Vanguard Materials Index |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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