Correlation Between Vanguard Momentum and Vanguard Value
Can any of the company-specific risk be diversified away by investing in both Vanguard Momentum and Vanguard Value 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 Momentum and Vanguard Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Momentum Factor and Vanguard Value Factor, you can compare the effects of market volatilities on Vanguard Momentum and Vanguard Value 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 Momentum with a short position of Vanguard Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Momentum and Vanguard Value.
Diversification Opportunities for Vanguard Momentum and Vanguard Value
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Momentum Factor and Vanguard Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Factor and Vanguard Momentum 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 Momentum Factor are associated (or correlated) with Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Factor has no effect on the direction of Vanguard Momentum i.e., Vanguard Momentum and Vanguard Value go up and down completely randomly.
Pair Corralation between Vanguard Momentum and Vanguard Value
Given the investment horizon of 90 days Vanguard Momentum Factor is expected to generate 0.85 times more return on investment than Vanguard Value. However, Vanguard Momentum Factor is 1.18 times less risky than Vanguard Value. It trades about 0.31 of its potential returns per unit of risk. Vanguard Value Factor is currently generating about 0.2 per unit of risk. If you would invest 16,422 in Vanguard Momentum Factor on August 28, 2024 and sell it today you would earn a total of 1,417 from holding Vanguard Momentum Factor or generate 8.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Momentum Factor vs. Vanguard Value Factor
Performance |
| Timeline |
| Vanguard Momentum Factor |
| Vanguard Value Factor |
Vanguard Momentum and Vanguard Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Momentum and Vanguard Value
The main advantage of trading using opposite Vanguard Momentum and Vanguard Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Momentum position performs unexpectedly, Vanguard Value 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 Value will offset losses from the drop in Vanguard Value's long position.| Vanguard Momentum vs. Vanguard Quality Factor | Vanguard Momentum vs. Vanguard Multifactor | Vanguard Momentum vs. Vanguard Value Factor | Vanguard Momentum vs. Vanguard Minimum Volatility |
| Vanguard Value vs. Vanguard Quality Factor | Vanguard Value vs. Vanguard Momentum Factor | Vanguard Value vs. Vanguard Multifactor | Vanguard Value vs. Vanguard Minimum Volatility |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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