Correlation Between Vanguard Value and Vanguard Momentum
Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Vanguard Momentum 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 Value and Vanguard Momentum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Value Factor and Vanguard Momentum Factor, you can compare the effects of market volatilities on Vanguard Value and Vanguard Momentum 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 Value with a short position of Vanguard Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Vanguard Momentum.
Diversification Opportunities for Vanguard Value and Vanguard Momentum
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 Value Factor and Vanguard Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Momentum Factor and Vanguard Value 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 Value Factor are associated (or correlated) with Vanguard Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Momentum Factor has no effect on the direction of Vanguard Value i.e., Vanguard Value and Vanguard Momentum go up and down completely randomly.
Pair Corralation between Vanguard Value and Vanguard Momentum
Given the investment horizon of 90 days Vanguard Value is expected to generate 1.27 times less return on investment than Vanguard Momentum. In addition to that, Vanguard Value is 1.14 times more volatile than Vanguard Momentum Factor. It trades about 0.21 of its total potential returns per unit of risk. Vanguard Momentum Factor is currently generating about 0.3 per unit of volatility. If you would invest 16,310 in Vanguard Momentum Factor on August 25, 2024 and sell it today you would earn a total of 1,396 from holding Vanguard Momentum Factor or generate 8.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Value Factor vs. Vanguard Momentum Factor
Performance |
| Timeline |
| Vanguard Value Factor |
| Vanguard Momentum Factor |
Vanguard Value and Vanguard Momentum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Value and Vanguard Momentum
The main advantage of trading using opposite Vanguard Value and Vanguard Momentum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value position performs unexpectedly, Vanguard Momentum 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 Momentum will offset losses from the drop in Vanguard Momentum's long position.| Vanguard Value vs. Vanguard Quality Factor | Vanguard Value vs. Vanguard Momentum Factor | Vanguard Value vs. Vanguard Multifactor | Vanguard Value vs. Vanguard Minimum Volatility |
| Vanguard Momentum vs. Vanguard Quality Factor | Vanguard Momentum vs. Vanguard Multifactor | Vanguard Momentum vs. Vanguard Value Factor | Vanguard Momentum 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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