Correlation Between Vanguard Industrials and Materials Select
Can any of the company-specific risk be diversified away by investing in both Vanguard Industrials and Materials Select 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 Materials Select 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 Materials Select Sector, you can compare the effects of market volatilities on Vanguard Industrials and Materials Select 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 Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Industrials and Materials Select.
Diversification Opportunities for Vanguard Industrials and Materials Select
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Vanguard and Materials is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Select Sector 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 Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and Materials Select go up and down completely randomly.
Pair Corralation between Vanguard Industrials and Materials Select
Considering the 90-day investment horizon Vanguard Industrials Index is expected to generate 1.52 times more return on investment than Materials Select. However, Vanguard Industrials is 1.52 times more volatile than Materials Select Sector. It trades about 0.33 of its potential returns per unit of risk. Materials Select Sector is currently generating about 0.09 per unit of risk. If you would invest 25,837 in Vanguard Industrials Index on September 3, 2024 and sell it today you would earn a total of 2,133 from holding Vanguard Industrials Index or generate 8.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Industrials Index vs. Materials Select Sector
Performance |
| Timeline |
| Vanguard Industrials |
| Materials Select Sector |
Vanguard Industrials and Materials Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Industrials and Materials Select
The main advantage of trading using opposite Vanguard Industrials and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Industrials position performs unexpectedly, Materials Select 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 Materials Select will offset losses from the drop in Materials Select's long position.The idea behind Vanguard Industrials Index and Materials Select Sector 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.
| Materials Select vs. Vanguard Industrials Index | Materials Select vs. Vanguard Communication Services | Materials Select vs. Vanguard Consumer Discretionary | Materials Select vs. Vanguard Consumer Staples |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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