Correlation Between Vanguard European and Henderson European
Can any of the company-specific risk be diversified away by investing in both Vanguard European and Henderson European 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 European and Henderson European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard European Stock and Henderson European Focus, you can compare the effects of market volatilities on Vanguard European and Henderson European 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 European with a short position of Henderson European. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard European and Henderson European.
Diversification Opportunities for Vanguard European and Henderson European
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Henderson is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock and Henderson European Focus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henderson European Focus and Vanguard European 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 European Stock are associated (or correlated) with Henderson European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henderson European Focus has no effect on the direction of Vanguard European i.e., Vanguard European and Henderson European go up and down completely randomly.
Pair Corralation between Vanguard European and Henderson European
Assuming the 90 days horizon Vanguard European Stock is expected to generate 0.88 times more return on investment than Henderson European. However, Vanguard European Stock is 1.14 times less risky than Henderson European. It trades about -0.14 of its potential returns per unit of risk. Henderson European Focus is currently generating about -0.17 per unit of risk. If you would invest 3,728 in Vanguard European Stock on September 12, 2024 and sell it today you would lose (176.00) from holding Vanguard European Stock or give up 4.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard European Stock vs. Henderson European Focus
Performance |
| Timeline |
| Vanguard European Stock |
| Henderson European Focus |
Vanguard European and Henderson European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard European and Henderson European
The main advantage of trading using opposite Vanguard European and Henderson European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard European position performs unexpectedly, Henderson European 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 Henderson European will offset losses from the drop in Henderson European's long position.The idea behind Vanguard European Stock and Henderson European Focus 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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