Correlation Between Vanguard Developed and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both Vanguard Developed and Vanguard Materials 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 Materials 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 Materials Index, you can compare the effects of market volatilities on Vanguard Developed and Vanguard Materials 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 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Developed and Vanguard Materials.
Diversification Opportunities for Vanguard Developed and Vanguard Materials
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between VANGUARD and Vanguard is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Vanguard Materials go up and down completely randomly.
Pair Corralation between Vanguard Developed and Vanguard Materials
Assuming the 90 days horizon Vanguard Developed Markets is expected to under-perform the Vanguard Materials. 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 Materials. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Vanguard Materials Index is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 10,645 in Vanguard Materials Index on August 31, 2024 and sell it today you would earn a total of 115.00 from holding Vanguard Materials Index or generate 1.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Developed Markets vs. Vanguard Materials Index
Performance |
| Timeline |
| Vanguard Developed |
| Vanguard Materials Index |
Vanguard Developed and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Developed and Vanguard Materials
The main advantage of trading using opposite Vanguard Developed and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Developed position performs unexpectedly, Vanguard Materials 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 Materials will offset losses from the drop in Vanguard Materials' 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 Materials vs. Vanguard Emerging Markets | Vanguard Materials vs. Vanguard Total International | Vanguard Materials vs. Vanguard Reit Index | Vanguard Materials vs. Vanguard Industrials 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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