Correlation Between Vanguard European and Vanguard Developed
Can any of the company-specific risk be diversified away by investing in both Vanguard European 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 European 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 European Stock and Vanguard Developed Markets, you can compare the effects of market volatilities on Vanguard European 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 European with a short position of Vanguard Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard European and Vanguard Developed.
Diversification Opportunities for Vanguard European and Vanguard Developed
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock 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 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 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 European i.e., Vanguard European and Vanguard Developed go up and down completely randomly.
Pair Corralation between Vanguard European and Vanguard Developed
Assuming the 90 days horizon Vanguard European Stock is expected to generate 1.06 times more return on investment than Vanguard Developed. However, Vanguard European is 1.06 times more volatile than Vanguard Developed Markets. It trades about 0.06 of its potential returns per unit of risk. Vanguard Developed Markets is currently generating about 0.06 per unit of risk. If you would invest 6,975 in Vanguard European Stock on November 27, 2024 and sell it today you would earn a total of 1,769 from holding Vanguard European Stock or generate 25.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard European Stock vs. Vanguard Developed Markets
Performance |
| Timeline |
| Vanguard European Stock |
| Vanguard Developed |
Vanguard European and Vanguard Developed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard European and Vanguard Developed
The main advantage of trading using opposite Vanguard European and Vanguard Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard European 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 European vs. Vanguard Pacific Stock | Vanguard European vs. Vanguard Emerging Markets | Vanguard European vs. Vanguard Reit Index | Vanguard European vs. Vanguard Small Cap Index |
| Vanguard Developed vs. Vanguard Emerging Markets | Vanguard Developed vs. Vanguard Tax Managed Small Cap | Vanguard Developed vs. Vanguard Small Cap Index | Vanguard Developed vs. Vanguard Value 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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