Correlation Between Vanguard Financials and Banking Fund
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and Banking Fund 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 Financials and Banking Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and Banking Fund Class, you can compare the effects of market volatilities on Vanguard Financials and Banking Fund 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 Financials with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Banking Fund.
Diversification Opportunities for Vanguard Financials and Banking Fund
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Banking is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Vanguard Financials 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 Financials Index are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Banking Fund go up and down completely randomly.
Pair Corralation between Vanguard Financials and Banking Fund
Assuming the 90 days horizon Vanguard Financials Index is expected to generate 0.79 times more return on investment than Banking Fund. However, Vanguard Financials Index is 1.27 times less risky than Banking Fund. It trades about -0.03 of its potential returns per unit of risk. Banking Fund Class is currently generating about -0.08 per unit of risk. If you would invest 6,147 in Vanguard Financials Index on September 12, 2024 and sell it today you would lose (26.00) from holding Vanguard Financials Index or give up 0.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Financials Index vs. Banking Fund Class
Performance |
| Timeline |
| Vanguard Financials Index |
| Banking Fund Class |
Vanguard Financials and Banking Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and Banking Fund
The main advantage of trading using opposite Vanguard Financials and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials position performs unexpectedly, Banking Fund 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 Banking Fund will offset losses from the drop in Banking Fund's long position.The idea behind Vanguard Financials Index and Banking Fund Class 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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