Correlation Between Vanguard Multifactor and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both Vanguard Multifactor and Vanguard Materials 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 Multifactor and Vanguard Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Multifactor and Vanguard Materials Index, you can compare the effects of market volatilities on Vanguard Multifactor and Vanguard Materials 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 Multifactor with a short position of Vanguard Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Multifactor and Vanguard Materials.
Diversification Opportunities for Vanguard Multifactor and Vanguard Materials
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Vanguard and Vanguard is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Vanguard Multifactor 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 Multifactor are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and Vanguard Materials go up and down completely randomly.
Pair Corralation between Vanguard Multifactor and Vanguard Materials
Assuming the 90 days horizon Vanguard Multifactor is expected to generate 0.89 times more return on investment than Vanguard Materials. However, Vanguard Multifactor is 1.12 times less risky than Vanguard Materials. It trades about -0.04 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about -0.12 per unit of risk. If you would invest 4,480 in Vanguard Multifactor on September 13, 2024 and sell it today you would lose (27.00) from holding Vanguard Multifactor or give up 0.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Multifactor vs. Vanguard Materials Index
Performance |
| Timeline |
| Vanguard Multifactor |
| Vanguard Materials Index |
Vanguard Multifactor and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Multifactor and Vanguard Materials
The main advantage of trading using opposite Vanguard Multifactor and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Multifactor position performs unexpectedly, Vanguard Materials 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 Vanguard Materials will offset losses from the drop in Vanguard Materials' long position.The idea behind Vanguard Multifactor and Vanguard Materials Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Vanguard Materials vs. Vanguard Emerging Markets | Vanguard Materials vs. Vanguard Total International | Vanguard Materials vs. Vanguard Reit Index | Vanguard Materials vs. Vanguard Industrials Index |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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