Correlation Between Vanguard 500 and Payden Absolute
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Payden Absolute 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 Payden Absolute 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 Payden Absolute Return, you can compare the effects of market volatilities on Vanguard 500 and Payden Absolute 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 Payden Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Payden Absolute.
Diversification Opportunities for Vanguard 500 and Payden Absolute
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Payden is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Payden Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Absolute Return 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 Payden Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Absolute Return has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Payden Absolute go up and down completely randomly.
Pair Corralation between Vanguard 500 and Payden Absolute
Assuming the 90 days horizon Vanguard 500 Index is expected to generate 7.73 times more return on investment than Payden Absolute. However, Vanguard 500 is 7.73 times more volatile than Payden Absolute Return. It trades about 0.13 of its potential returns per unit of risk. Payden Absolute Return is currently generating about 0.15 per unit of risk. If you would invest 25,732 in Vanguard 500 Index on September 1, 2024 and sell it today you would earn a total of 3,840 from holding Vanguard 500 Index or generate 14.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Payden Absolute Return
Performance |
| Timeline |
| Vanguard 500 Index |
| Payden Absolute Return |
Vanguard 500 and Payden Absolute Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Payden Absolute
The main advantage of trading using opposite Vanguard 500 and Payden Absolute positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Payden Absolute 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 Payden Absolute will offset losses from the drop in Payden Absolute's long position.| Vanguard 500 vs. Artisan Small Cap | Vanguard 500 vs. Small Midcap Dividend Income | Vanguard 500 vs. Touchstone Small Cap | Vanguard 500 vs. Kinetics Small Cap |
| Payden Absolute vs. Vanguard Total Stock | Payden Absolute vs. Vanguard 500 Index | Payden Absolute vs. Vanguard Total Stock | Payden Absolute vs. Vanguard Total Stock |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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