Correlation Between Vanguard Industrials and Vanguard Energy
Can any of the company-specific risk be diversified away by investing in both Vanguard Industrials and Vanguard Energy 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 Industrials and Vanguard Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Industrials Index and Vanguard Energy Index, you can compare the effects of market volatilities on Vanguard Industrials and Vanguard Energy 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 Industrials with a short position of Vanguard Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Industrials and Vanguard Energy.
Diversification Opportunities for Vanguard Industrials and Vanguard Energy
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and Vanguard Energy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy Index and Vanguard Industrials 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 Industrials Index are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy Index has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and Vanguard Energy go up and down completely randomly.
Pair Corralation between Vanguard Industrials and Vanguard Energy
Assuming the 90 days horizon Vanguard Industrials is expected to generate 3.09 times less return on investment than Vanguard Energy. In addition to that, Vanguard Industrials is 1.03 times more volatile than Vanguard Energy Index. It trades about 0.11 of its total potential returns per unit of risk. Vanguard Energy Index is currently generating about 0.35 per unit of volatility. If you would invest 6,252 in Vanguard Energy Index on August 24, 2024 and sell it today you would earn a total of 550.00 from holding Vanguard Energy Index or generate 8.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Industrials Index vs. Vanguard Energy Index
Performance |
| Timeline |
| Vanguard Industrials |
| Vanguard Energy Index |
Vanguard Industrials and Vanguard Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Industrials and Vanguard Energy
The main advantage of trading using opposite Vanguard Industrials and Vanguard Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Industrials position performs unexpectedly, Vanguard Energy 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 Energy will offset losses from the drop in Vanguard Energy's long position.The idea behind Vanguard Industrials Index and Vanguard Energy 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 Energy vs. Ivy Energy Fund | Vanguard Energy vs. Fidelity Advisor Energy | Vanguard Energy vs. Aquagold International | Vanguard Energy vs. Morningstar Unconstrained Allocation |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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