Correlation Between Vanguard 500 and First American
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and First American 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 First American 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 First American Funds, you can compare the effects of market volatilities on Vanguard 500 and First American 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 First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and First American.
Diversification Opportunities for Vanguard 500 and First American
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and First is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and First American go up and down completely randomly.
Pair Corralation between Vanguard 500 and First American
Assuming the 90 days horizon Vanguard 500 is expected to generate 6.6 times less return on investment than First American. But when comparing it to its historical volatility, Vanguard 500 Index is 24.11 times less risky than First American. It trades about 0.11 of its potential returns per unit of risk. First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 334.00 in First American Funds on September 3, 2024 and sell it today you would lose (234.00) from holding First American Funds or give up 70.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. First American Funds
Performance |
| Timeline |
| Vanguard 500 Index |
| First American Funds |
Vanguard 500 and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and First American
The main advantage of trading using opposite Vanguard 500 and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, First American 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 First American will offset losses from the drop in First American'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 |
| First American vs. Vanguard Total Stock | First American vs. Vanguard 500 Index | First American vs. Vanguard Total Stock | First American 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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