Correlation Between Vanguard Value and Vanguard Institutional

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

Diversification Opportunities for Vanguard Value and Vanguard Institutional

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Vanguard Institutional Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Institutional 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 Index are associated (or correlated) with Vanguard Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Institutional has no effect on the direction of Vanguard Value i.e., Vanguard Value and Vanguard Institutional go up and down completely randomly.

Pair Corralation between Vanguard Value and Vanguard Institutional

Assuming the 90 days horizon Vanguard Value is expected to generate 1.27 times less return on investment than Vanguard Institutional. But when comparing it to its historical volatility, Vanguard Value Index is 1.2 times less risky than Vanguard Institutional. It trades about 0.14 of its potential returns per unit of risk. Vanguard Institutional Index is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  38,312  in Vanguard Institutional Index on September 8, 2024 and sell it today you would earn a total of  11,922  from holding Vanguard Institutional Index or generate 31.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.6%
ValuesDaily Returns

Vanguard Value Index  vs.  Vanguard Institutional Index

 Performance 
       Timeline  
Vanguard Value Index 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Institutional 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Institutional Index are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Institutional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Value and Vanguard Institutional Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Value and Vanguard Institutional

The main advantage of trading using opposite Vanguard Value and Vanguard Institutional positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value position performs unexpectedly, Vanguard Institutional 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 Institutional will offset losses from the drop in Vanguard Institutional's long position.
The idea behind Vanguard Value Index and Vanguard Institutional 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.
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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