Correlation Between Vanguard Developed and Vanguard Pacific
Can any of the company-specific risk be diversified away by investing in both Vanguard Developed and Vanguard Pacific 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 Developed and Vanguard Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Developed Markets and Vanguard Pacific Stock, you can compare the effects of market volatilities on Vanguard Developed and Vanguard Pacific 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 Developed with a short position of Vanguard Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Developed and Vanguard Pacific.
Diversification Opportunities for Vanguard Developed and Vanguard Pacific
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Vanguard Pacific Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Pacific Stock and Vanguard Developed 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 Developed Markets are associated (or correlated) with Vanguard Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Pacific Stock has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Vanguard Pacific go up and down completely randomly.
Pair Corralation between Vanguard Developed and Vanguard Pacific
Assuming the 90 days horizon Vanguard Developed Markets is expected to under-perform the Vanguard Pacific. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Developed Markets is 1.04 times less risky than Vanguard Pacific. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Vanguard Pacific Stock is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 1,426 in Vanguard Pacific Stock on August 30, 2024 and sell it today you would lose (14.00) from holding Vanguard Pacific Stock or give up 0.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Vanguard Developed Markets vs. Vanguard Pacific Stock
Performance |
| Timeline |
| Vanguard Developed |
| Vanguard Pacific Stock |
Vanguard Developed and Vanguard Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Developed and Vanguard Pacific
The main advantage of trading using opposite Vanguard Developed and Vanguard Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Developed position performs unexpectedly, Vanguard Pacific 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 Pacific will offset losses from the drop in Vanguard Pacific's long position.| Vanguard Developed vs. Vanguard Emerging Markets | Vanguard Developed vs. Vanguard Tax Managed Small Cap | Vanguard Developed vs. Vanguard Small Cap Index | Vanguard Developed vs. Vanguard Value Index |
| Vanguard Pacific vs. Vanguard European Stock | Vanguard Pacific vs. Vanguard Emerging Markets | Vanguard Pacific vs. Vanguard Reit Index | Vanguard Pacific vs. Vanguard Developed Markets |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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