Correlation Between Vanguard 500 and Commonwealth Japan
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Commonwealth Japan 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 500 and Commonwealth Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard 500 Index and Commonwealth Japan Fund, you can compare the effects of market volatilities on Vanguard 500 and Commonwealth Japan 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 500 with a short position of Commonwealth Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Commonwealth Japan.
Diversification Opportunities for Vanguard 500 and Commonwealth Japan
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and Commonwealth is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Commonwealth Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Japan and Vanguard 500 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 500 Index are associated (or correlated) with Commonwealth Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Japan has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Commonwealth Japan go up and down completely randomly.
Pair Corralation between Vanguard 500 and Commonwealth Japan
Assuming the 90 days horizon Vanguard 500 Index is expected to generate 0.87 times more return on investment than Commonwealth Japan. However, Vanguard 500 Index is 1.15 times less risky than Commonwealth Japan. It trades about 0.16 of its potential returns per unit of risk. Commonwealth Japan Fund is currently generating about -0.06 per unit of risk. If you would invest 28,432 in Vanguard 500 Index on August 26, 2024 and sell it today you would earn a total of 824.00 from holding Vanguard 500 Index or generate 2.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Commonwealth Japan Fund
Performance |
| Timeline |
| Vanguard 500 Index |
| Commonwealth Japan |
Vanguard 500 and Commonwealth Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Commonwealth Japan
The main advantage of trading using opposite Vanguard 500 and Commonwealth Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Commonwealth Japan 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 Commonwealth Japan will offset losses from the drop in Commonwealth Japan's long position.| Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Extended Market |
| Commonwealth Japan vs. Commonwealth Australianew Zealand | Commonwealth Japan vs. Lazard Emerging Markets | Commonwealth Japan vs. Ashmore Emerging Markets | Commonwealth Japan vs. Aquagold International |
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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