Correlation Between Vanguard Wellington and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Vanguard Wellington and Vanguard 500 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 Wellington and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Wellington Fund and Vanguard 500 Index, you can compare the effects of market volatilities on Vanguard Wellington and Vanguard 500 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 Wellington with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Wellington and Vanguard 500.
Diversification Opportunities for Vanguard Wellington and Vanguard 500
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Wellington Fund and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Vanguard Wellington 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 Wellington Fund are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Vanguard Wellington i.e., Vanguard Wellington and Vanguard 500 go up and down completely randomly.
Pair Corralation between Vanguard Wellington and Vanguard 500
Assuming the 90 days horizon Vanguard Wellington is expected to generate 1.65 times less return on investment than Vanguard 500. But when comparing it to its historical volatility, Vanguard Wellington Fund is 1.43 times less risky than Vanguard 500. It trades about 0.11 of its potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 36,758 in Vanguard 500 Index on September 25, 2024 and sell it today you would earn a total of 18,125 from holding Vanguard 500 Index or generate 49.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Wellington Fund vs. Vanguard 500 Index
Performance |
| Timeline |
| Vanguard Wellington |
| Vanguard 500 Index |
Vanguard Wellington and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Wellington and Vanguard 500
The main advantage of trading using opposite Vanguard Wellington and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Wellington position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.| Vanguard Wellington vs. Vanguard Wellesley Income | Vanguard Wellington vs. Vanguard Primecap Fund | Vanguard Wellington vs. Vanguard Health Care | Vanguard Wellington vs. Vanguard Windsor Ii |
| Vanguard 500 vs. Vanguard International Growth | Vanguard 500 vs. Vanguard Wellington Fund | Vanguard 500 vs. Vanguard Windsor Ii |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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