Correlation Between Vanguard Developed and Vanguard Emerging
Can any of the company-specific risk be diversified away by investing in both Vanguard Developed and Vanguard Emerging 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 Emerging 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 Emerging Markets, you can compare the effects of market volatilities on Vanguard Developed and Vanguard Emerging 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 Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Developed and Vanguard Emerging.
Diversification Opportunities for Vanguard Developed and Vanguard Emerging
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between VANGUARD and Vanguard is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets 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 Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Vanguard Emerging go up and down completely randomly.
Pair Corralation between Vanguard Developed and Vanguard Emerging
Assuming the 90 days horizon Vanguard Developed Markets is expected to under-perform the Vanguard Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Developed Markets is 1.16 times less risky than Vanguard Emerging. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Vanguard Emerging Markets is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,781 in Vanguard Emerging Markets on September 2, 2024 and sell it today you would earn a total of 95.00 from holding Vanguard Emerging Markets or generate 3.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Developed Markets vs. Vanguard Emerging Markets
Performance |
| Timeline |
| Vanguard Developed |
| Vanguard Emerging Markets |
Vanguard Developed and Vanguard Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Developed and Vanguard Emerging
The main advantage of trading using opposite Vanguard Developed and Vanguard Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Developed position performs unexpectedly, Vanguard Emerging 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 Emerging will offset losses from the drop in Vanguard Emerging's long position.| Vanguard Developed vs. Vanguard Emerging Markets | Vanguard Developed vs. Vanguard Small Cap Index | Vanguard Developed vs. Vanguard Total Bond | Vanguard Developed vs. Vanguard Mid Cap Index |
| Vanguard Emerging vs. Vanguard Materials Index | Vanguard Emerging vs. Vanguard Limited Term Tax Exempt | Vanguard Emerging vs. Vanguard Limited Term Tax Exempt | Vanguard Emerging vs. Vanguard Global Minimum |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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