Correlation Between Vanguard 500 and Fabxx
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Fabxx 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 Fabxx 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 Fabxx, you can compare the effects of market volatilities on Vanguard 500 and Fabxx 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 Fabxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Fabxx.
Diversification Opportunities for Vanguard 500 and Fabxx
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vanguard and Fabxx is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx 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 Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Fabxx go up and down completely randomly.
Pair Corralation between Vanguard 500 and Fabxx
Assuming the 90 days horizon Vanguard 500 is expected to generate 58.25 times less return on investment than Fabxx. But when comparing it to its historical volatility, Vanguard 500 Index is 7.8 times less risky than Fabxx. It trades about 0.07 of its potential returns per unit of risk. Fabxx is currently generating about 0.56 of returns per unit of risk over similar time horizon. If you would invest 100.00 in Fabxx on November 5, 2024 and sell it today you would earn a total of 93.00 from holding Fabxx or generate 93.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Fabxx
Performance |
| Timeline |
| Vanguard 500 Index |
| Fabxx |
Vanguard 500 and Fabxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Fabxx
The main advantage of trading using opposite Vanguard 500 and Fabxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Fabxx 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 Fabxx will offset losses from the drop in Fabxx's long position.| Vanguard 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond |
| Fabxx vs. Vanguard Total Stock | Fabxx vs. Vanguard 500 Index | Fabxx vs. Vanguard Total Stock | Fabxx 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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