Correlation Between Vanguard World and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Vanguard World and Applied 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 World and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard World and Applied Materials, you can compare the effects of market volatilities on Vanguard World and Applied 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 World with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard World and Applied Materials.
Diversification Opportunities for Vanguard World and Applied Materials
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Vanguard and Applied is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Vanguard World 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 World are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Vanguard World i.e., Vanguard World and Applied Materials go up and down completely randomly.
Pair Corralation between Vanguard World and Applied Materials
Assuming the 90 days trading horizon Vanguard World is expected to generate 1.48 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Vanguard World is 2.69 times less risky than Applied Materials. It trades about 0.1 of its potential returns per unit of risk. Applied Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 287,503 in Applied Materials on November 3, 2024 and sell it today you would earn a total of 87,197 from holding Applied Materials or generate 30.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard World vs. Applied Materials
Performance |
| Timeline |
| Vanguard World |
| Applied Materials |
Vanguard World and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard World and Applied Materials
The main advantage of trading using opposite Vanguard World and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard World position performs unexpectedly, Applied 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| Vanguard World vs. Vanguard Funds Public | Vanguard World vs. Vanguard Specialized Funds | Vanguard World vs. Vanguard World | Vanguard World vs. Vanguard Index Funds |
| Applied Materials vs. Delta Air Lines | Applied Materials vs. GMxico Transportes SAB | Applied Materials vs. First Republic Bank | Applied Materials vs. The Home Depot |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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