Correlation Between Vanguard Index and Vanguard Specialized
Can any of the company-specific risk be diversified away by investing in both Vanguard Index and Vanguard Specialized 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 Specialized 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 Specialized Funds, you can compare the effects of market volatilities on Vanguard Index and Vanguard Specialized 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 Specialized. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Index and Vanguard Specialized.
Diversification Opportunities for Vanguard Index and Vanguard Specialized
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Funds and Vanguard Specialized Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Specialized 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 Specialized. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Specialized has no effect on the direction of Vanguard Index i.e., Vanguard Index and Vanguard Specialized go up and down completely randomly.
Pair Corralation between Vanguard Index and Vanguard Specialized
Assuming the 90 days trading horizon Vanguard Index Funds is expected to generate 1.41 times more return on investment than Vanguard Specialized. However, Vanguard Index is 1.41 times more volatile than Vanguard Specialized Funds. It trades about 0.22 of its potential returns per unit of risk. Vanguard Specialized Funds is currently generating about 0.22 per unit of risk. If you would invest 771,500 in Vanguard Index Funds on September 1, 2024 and sell it today you would earn a total of 61,500 from holding Vanguard Index Funds or generate 7.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Index Funds vs. Vanguard Specialized Funds
Performance |
| Timeline |
| Vanguard Index Funds |
| Vanguard Specialized |
Vanguard Index and Vanguard Specialized Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Index and Vanguard Specialized
The main advantage of trading using opposite Vanguard Index and Vanguard Specialized positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Index position performs unexpectedly, Vanguard Specialized 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 Specialized will offset losses from the drop in Vanguard Specialized's long position.| Vanguard Index vs. Vanguard Funds Public | Vanguard Index vs. Vanguard Specialized Funds | Vanguard Index vs. Vanguard World | Vanguard Index vs. Vanguard Industrials ETF |
| Vanguard Specialized vs. Vanguard Funds Public | Vanguard Specialized vs. Vanguard World | Vanguard Specialized vs. Vanguard Index Funds | Vanguard Specialized vs. Vanguard Industrials ETF |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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