Correlation Between Vanguard Health and Vanguard Consumer

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Can any of the company-specific risk be diversified away by investing in both Vanguard Health and Vanguard Consumer 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 Health and Vanguard Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Health Care and Vanguard Consumer Staples, you can compare the effects of market volatilities on Vanguard Health and Vanguard Consumer 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 Health with a short position of Vanguard Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Health and Vanguard Consumer.

Diversification Opportunities for Vanguard Health and Vanguard Consumer

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Vanguard Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer Staples and Vanguard Health 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 Health Care are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer Staples has no effect on the direction of Vanguard Health i.e., Vanguard Health and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Vanguard Health and Vanguard Consumer

Considering the 90-day investment horizon Vanguard Health is expected to generate 1.74 times less return on investment than Vanguard Consumer. But when comparing it to its historical volatility, Vanguard Health Care is 1.03 times less risky than Vanguard Consumer. It trades about 0.18 of its potential returns per unit of risk. Vanguard Consumer Staples is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  20,943  in Vanguard Consumer Staples on November 18, 2024 and sell it today you would earn a total of  1,172  from holding Vanguard Consumer Staples or generate 5.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Vanguard Health Care  vs.  Vanguard Consumer Staples

 Performance 
       Timeline  
Vanguard Health Care 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Health Care are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Vanguard Consumer Staples 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Staples are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Health and Vanguard Consumer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Health and Vanguard Consumer

The main advantage of trading using opposite Vanguard Health and Vanguard Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Health position performs unexpectedly, Vanguard Consumer 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 Consumer will offset losses from the drop in Vanguard Consumer's long position.
The idea behind Vanguard Health Care and Vanguard Consumer Staples 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.
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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