Correlation Between Vanguard Index and Vanguard World
Can any of the company-specific risk be diversified away by investing in both Vanguard Index and Vanguard World 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 Vanguard World 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 Vanguard World, you can compare the effects of market volatilities on Vanguard Index and Vanguard World 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 Vanguard World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Index and Vanguard World.
Diversification Opportunities for Vanguard Index and Vanguard World
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Funds and Vanguard World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard World 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 Vanguard World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard World has no effect on the direction of Vanguard Index i.e., Vanguard Index and Vanguard World go up and down completely randomly.
Pair Corralation between Vanguard Index and Vanguard World
Assuming the 90 days trading horizon Vanguard Index is expected to generate 1.06 times less return on investment than Vanguard World. But when comparing it to its historical volatility, Vanguard Index Funds is 1.2 times less risky than Vanguard World. It trades about 0.18 of its potential returns per unit of risk. Vanguard World is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,207,900 in Vanguard World on August 27, 2024 and sell it today you would earn a total of 63,100 from holding Vanguard World or generate 5.22% 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. Vanguard World
Performance |
| Timeline |
| Vanguard Index Funds |
| Vanguard World |
Vanguard Index and Vanguard World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Index and Vanguard World
The main advantage of trading using opposite Vanguard Index and Vanguard World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Index position performs unexpectedly, Vanguard World 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 World will offset losses from the drop in Vanguard World's long position.| Vanguard Index vs. Vanguard Index Funds | Vanguard Index vs. Vanguard Tax Managed Funds | Vanguard Index vs. Vanguard International Equity |
| Vanguard World vs. Vanguard Index Funds | Vanguard World vs. Vanguard Index Funds | Vanguard World vs. Vanguard Tax Managed Funds | Vanguard World vs. Vanguard International Equity |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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