Correlation Between Vanguard Emerging and Vanguard Global
Can any of the company-specific risk be diversified away by investing in both Vanguard Emerging and Vanguard Global 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 Emerging and Vanguard Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Emerging Markets and Vanguard Global ex US, you can compare the effects of market volatilities on Vanguard Emerging and Vanguard Global 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 Emerging with a short position of Vanguard Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Vanguard Global.
Diversification Opportunities for Vanguard Emerging and Vanguard Global
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 Emerging Markets and Vanguard Global ex US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Global ex and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Global ex has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard Global go up and down completely randomly.
Pair Corralation between Vanguard Emerging and Vanguard Global
Given the investment horizon of 90 days Vanguard Emerging is expected to generate 1.75 times less return on investment than Vanguard Global. But when comparing it to its historical volatility, Vanguard Emerging Markets is 2.49 times less risky than Vanguard Global. It trades about 0.24 of its potential returns per unit of risk. Vanguard Global ex US is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,929 in Vanguard Global ex US on November 2, 2024 and sell it today you would earn a total of 108.00 from holding Vanguard Global ex US or generate 2.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Emerging Markets vs. Vanguard Global ex US
Performance |
| Timeline |
| Vanguard Emerging Markets |
| Vanguard Global ex |
Vanguard Emerging and Vanguard Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Emerging and Vanguard Global
The main advantage of trading using opposite Vanguard Emerging and Vanguard Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging position performs unexpectedly, Vanguard Global 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 Global will offset losses from the drop in Vanguard Global's long position.The idea behind Vanguard Emerging Markets and Vanguard Global ex US 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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