Correlation Between Vanguard 500 and State Street
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and State Street 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 State Street 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 State Street Smallmid, you can compare the effects of market volatilities on Vanguard 500 and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and State Street.
Diversification Opportunities for Vanguard 500 and State Street
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between VANGUARD and State is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and State Street Smallmid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Smallmid 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Smallmid has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and State Street go up and down completely randomly.
Pair Corralation between Vanguard 500 and State Street
Assuming the 90 days horizon Vanguard 500 is expected to generate 3.88 times less return on investment than State Street. But when comparing it to its historical volatility, Vanguard 500 Index is 1.61 times less risky than State Street. It trades about 0.14 of its potential returns per unit of risk. State Street Smallmid is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 32,318 in State Street Smallmid on August 25, 2024 and sell it today you would earn a total of 3,289 from holding State Street Smallmid or generate 10.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. State Street Smallmid
Performance |
| Timeline |
| Vanguard 500 Index |
| State Street Smallmid |
Vanguard 500 and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and State Street
The main advantage of trading using opposite Vanguard 500 and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street'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 |
| State Street vs. Vanguard Small Cap Index | State Street vs. Vanguard 500 Index | State Street vs. Vanguard Growth Index | State Street vs. Vanguard Total 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA |