Correlation Between Vanguard Value and Volatility Shares
Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Volatility Shares 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 Value and Volatility Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Value Index and Volatility Shares Trust, you can compare the effects of market volatilities on Vanguard Value and Volatility Shares 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 Value with a short position of Volatility Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Volatility Shares.
Diversification Opportunities for Vanguard Value and Volatility Shares
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Volatility is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Volatility Shares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volatility Shares Trust and Vanguard Value 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 Value Index are associated (or correlated) with Volatility Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volatility Shares Trust has no effect on the direction of Vanguard Value i.e., Vanguard Value and Volatility Shares go up and down completely randomly.
Pair Corralation between Vanguard Value and Volatility Shares
Considering the 90-day investment horizon Vanguard Value is expected to generate 45.73 times less return on investment than Volatility Shares. But when comparing it to its historical volatility, Vanguard Value Index is 10.16 times less risky than Volatility Shares. It trades about 0.09 of its potential returns per unit of risk. Volatility Shares Trust is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 3,104 in Volatility Shares Trust on August 23, 2024 and sell it today you would earn a total of 3,183 from holding Volatility Shares Trust or generate 102.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Value Index vs. Volatility Shares Trust
Performance |
| Timeline |
| Vanguard Value Index |
| Volatility Shares Trust |
Vanguard Value and Volatility Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Value and Volatility Shares
The main advantage of trading using opposite Vanguard Value and Volatility Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value position performs unexpectedly, Volatility Shares 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 Volatility Shares will offset losses from the drop in Volatility Shares' long position.| Vanguard Value vs. Vanguard Growth Index | Vanguard Value vs. Vanguard Small Cap Value | Vanguard Value vs. Vanguard Mid Cap Value | Vanguard Value vs. Vanguard Small Cap Index |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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