Correlation Between Vanguard Market and Vanguard Value

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

Diversification Opportunities for Vanguard Market and Vanguard Value

VanguardVanguardDiversified AwayVanguardVanguardDiversified Away100%
0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between Vanguard and Vanguard is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Market Neutral and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index and Vanguard Market 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 Market Neutral are associated (or correlated) with Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Vanguard Market i.e., Vanguard Market and Vanguard Value go up and down completely randomly.

Pair Corralation between Vanguard Market and Vanguard Value

Assuming the 90 days horizon Vanguard Market Neutral is expected to under-perform the Vanguard Value. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Market Neutral is 1.44 times less risky than Vanguard Value. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Vanguard Value Index is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  6,925  in Vanguard Value Index on November 27, 2024 and sell it today you would lose (41.00) from holding Vanguard Value Index or give up 0.59% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard Market Neutral  vs.  Vanguard Value Index

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -4-3-2-10123
JavaScript chart by amCharts 3.21.15VMNIX VVIAX
       Timeline  
Vanguard Market Neutral 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Vanguard Market Neutral has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb13.113.1513.213.2513.313.3513.4
Vanguard Value Index 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb6667686970

Vanguard Market and Vanguard Value Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.61-0.4-0.19-0.0682-0.01090.04050.09360.280.490.7 0.51.01.52.02.5
JavaScript chart by amCharts 3.21.15VMNIX VVIAX
       Returns  

Pair Trading with Vanguard Market and Vanguard Value

The main advantage of trading using opposite Vanguard Market and Vanguard Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Market position performs unexpectedly, Vanguard Value 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 Value will offset losses from the drop in Vanguard Value's long position.
The idea behind Vanguard Market Neutral and Vanguard Value 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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