Correlation Between Vanguard Large and Overlay Shares

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Can any of the company-specific risk be diversified away by investing in both Vanguard Large and Overlay 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 Large and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Large Cap Index and Overlay Shares Hedged, you can compare the effects of market volatilities on Vanguard Large and Overlay 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 Large with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Large and Overlay Shares.

Diversification Opportunities for Vanguard Large and Overlay Shares

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Overlay is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Overlay Shares Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Hedged and Vanguard Large 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 Large Cap Index are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Hedged has no effect on the direction of Vanguard Large i.e., Vanguard Large and Overlay Shares go up and down completely randomly.

Pair Corralation between Vanguard Large and Overlay Shares

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.62 times more return on investment than Overlay Shares. However, Vanguard Large is 1.62 times more volatile than Overlay Shares Hedged. It trades about 0.0 of its potential returns per unit of risk. Overlay Shares Hedged is currently generating about -0.03 per unit of risk. If you would invest  27,929  in Vanguard Large Cap Index on November 4, 2024 and sell it today you would lose (53.00) from holding Vanguard Large Cap Index or give up 0.19% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Large Cap Index  vs.  Overlay Shares Hedged

 Performance 
       Timeline  
Vanguard Large Cap 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Large may actually be approaching a critical reversion point that can send shares even higher in March 2025.
Overlay Shares Hedged 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Hedged are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Overlay Shares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Vanguard Large and Overlay Shares Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Large and Overlay Shares

The main advantage of trading using opposite Vanguard Large and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Large position performs unexpectedly, Overlay 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.
The idea behind Vanguard Large Cap Index and Overlay Shares Hedged pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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