Correlation Between Vanguard Emerging and Vanguard Developed
Can any of the company-specific risk be diversified away by investing in both Vanguard Emerging and Vanguard Developed 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 Emerging and Vanguard Developed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Emerging Markets and Vanguard Developed Markets, you can compare the effects of market volatilities on Vanguard Emerging and Vanguard Developed 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 Emerging with a short position of Vanguard Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Vanguard Developed.
Diversification Opportunities for Vanguard Emerging and Vanguard Developed
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vanguard and Vanguard is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and Vanguard Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Developed and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Developed has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard Developed go up and down completely randomly.
Pair Corralation between Vanguard Emerging and Vanguard Developed
Assuming the 90 days horizon Vanguard Emerging Markets is expected to generate 1.01 times more return on investment than Vanguard Developed. However, Vanguard Emerging is 1.01 times more volatile than Vanguard Developed Markets. It trades about 0.09 of its potential returns per unit of risk. Vanguard Developed Markets is currently generating about 0.05 per unit of risk. If you would invest 3,319 in Vanguard Emerging Markets on September 12, 2024 and sell it today you would earn a total of 612.00 from holding Vanguard Emerging Markets or generate 18.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Emerging Markets vs. Vanguard Developed Markets
Performance |
| Timeline |
| Vanguard Emerging Markets |
| Vanguard Developed |
Vanguard Emerging and Vanguard Developed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Emerging and Vanguard Developed
The main advantage of trading using opposite Vanguard Emerging and Vanguard Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging position performs unexpectedly, Vanguard Developed 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 Developed will offset losses from the drop in Vanguard Developed's long position.| Vanguard Emerging vs. Vanguard Developed Markets | Vanguard Emerging vs. Vanguard Reit Index | Vanguard Emerging vs. Vanguard Small Cap Index | Vanguard Emerging vs. Vanguard European Stock |
| Vanguard Developed vs. Rbc Emerging Markets | Vanguard Developed vs. Extended Market Index | Vanguard Developed vs. Ab All Market | Vanguard Developed vs. Siit Emerging Markets |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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