Correlation Between Vanguard Equity and Capital World
Can any of the company-specific risk be diversified away by investing in both Vanguard Equity and Capital World 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 Equity and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Equity Income and Capital World Growth, you can compare the effects of market volatilities on Vanguard Equity and Capital World 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 Equity with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Equity and Capital World.
Diversification Opportunities for Vanguard Equity and Capital World
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VANGUARD and Capital is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Equity Income and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Vanguard Equity 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 Equity Income are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Vanguard Equity i.e., Vanguard Equity and Capital World go up and down completely randomly.
Pair Corralation between Vanguard Equity and Capital World
Assuming the 90 days horizon Vanguard Equity Income is expected to generate 1.19 times more return on investment than Capital World. However, Vanguard Equity is 1.19 times more volatile than Capital World Growth. It trades about 0.21 of its potential returns per unit of risk. Capital World Growth is currently generating about -0.01 per unit of risk. If you would invest 4,576 in Vanguard Equity Income on August 30, 2024 and sell it today you would earn a total of 171.00 from holding Vanguard Equity Income or generate 3.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Equity Income vs. Capital World Growth
Performance |
| Timeline |
| Vanguard Equity Income |
| Capital World Growth |
Vanguard Equity and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Equity and Capital World
The main advantage of trading using opposite Vanguard Equity and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Equity position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Vanguard Equity vs. Vanguard Dividend Growth | Vanguard Equity vs. Vanguard Wellesley Income | Vanguard Equity vs. Vanguard Wellington Fund | Vanguard Equity vs. Vanguard Growth And |
| Capital World vs. Small Cap Equity | Capital World vs. Cutler Equity | Capital World vs. Vanguard Equity Income | Capital World vs. Gmo Global Equity |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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