Correlation Between Vanguard Index and Select Sector
Can any of the company-specific risk be diversified away by investing in both Vanguard Index and Select Sector 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 Index and Select Sector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Index Funds and The Select Sector, you can compare the effects of market volatilities on Vanguard Index and Select Sector 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 Index with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Index and Select Sector.
Diversification Opportunities for Vanguard Index and Select Sector
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Select is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Funds and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and Vanguard Index 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 Index Funds are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of Vanguard Index i.e., Vanguard Index and Select Sector go up and down completely randomly.
Pair Corralation between Vanguard Index and Select Sector
Assuming the 90 days trading horizon Vanguard Index is expected to generate 1.24 times less return on investment than Select Sector. But when comparing it to its historical volatility, Vanguard Index Funds is 1.37 times less risky than Select Sector. It trades about 0.17 of its potential returns per unit of risk. The Select Sector is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 275,031 in The Select Sector on September 19, 2024 and sell it today you would earn a total of 207,453 from holding The Select Sector or generate 75.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Index Funds vs. The Select Sector
Performance |
| Timeline |
| Vanguard Index Funds |
| Select Sector |
Vanguard Index and Select Sector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Index and Select Sector
The main advantage of trading using opposite Vanguard Index and Select Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Index position performs unexpectedly, Select Sector 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 Select Sector will offset losses from the drop in Select Sector's long position.| Vanguard Index vs. Vanguard Funds Public | Vanguard Index vs. Vanguard Specialized Funds | Vanguard Index vs. Vanguard World | Vanguard Index vs. Vanguard Index Funds |
| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. SPDR SP 500 | Select Sector vs. Vanguard Bond Index |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
Other Complementary Tools
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas |