Correlation Between Vanguard 500 and American Funds
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and American Funds 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 American Funds 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 American Funds 2040, you can compare the effects of market volatilities on Vanguard 500 and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and American Funds.
Diversification Opportunities for Vanguard 500 and American Funds
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and American is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and American Funds 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2040 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2040 has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and American Funds go up and down completely randomly.
Pair Corralation between Vanguard 500 and American Funds
Assuming the 90 days horizon Vanguard 500 is expected to generate 1.05 times less return on investment than American Funds. In addition to that, Vanguard 500 is 1.14 times more volatile than American Funds 2040. It trades about 0.17 of its total potential returns per unit of risk. American Funds 2040 is currently generating about 0.21 per unit of volatility. If you would invest 2,158 in American Funds 2040 on September 15, 2024 and sell it today you would earn a total of 44.00 from holding American Funds 2040 or generate 2.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Vanguard 500 Index vs. American Funds 2040
Performance |
| Timeline |
| Vanguard 500 Index |
| American Funds 2040 |
Vanguard 500 and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and American Funds
The main advantage of trading using opposite Vanguard 500 and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Vanguard 500 vs. Vanguard Total International | Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Reit Index |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds vs. American Mutual Fund |
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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