Correlation Between Select Sector and Vanguard Funds
Can any of the company-specific risk be diversified away by investing in both Select Sector and Vanguard Funds 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 Select Sector and Vanguard Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Vanguard Funds Public, you can compare the effects of market volatilities on Select Sector and Vanguard Funds 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 Select Sector with a short position of Vanguard Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Vanguard Funds.
Diversification Opportunities for Select Sector and Vanguard Funds
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Select and Vanguard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Vanguard Funds Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds Public and Select Sector 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 The Select Sector are associated (or correlated) with Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds Public has no effect on the direction of Select Sector i.e., Select Sector and Vanguard Funds go up and down completely randomly.
Pair Corralation between Select Sector and Vanguard Funds
Assuming the 90 days trading horizon The Select Sector is expected to generate 1.38 times more return on investment than Vanguard Funds. However, Select Sector is 1.38 times more volatile than Vanguard Funds Public. It trades about 0.07 of its potential returns per unit of risk. Vanguard Funds Public is currently generating about 0.04 per unit of risk. If you would invest 184,671 in The Select Sector on September 22, 2024 and sell it today you would earn a total of 85,329 from holding The Select Sector or generate 46.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 93.76% |
| Values | Daily Returns |
The Select Sector vs. Vanguard Funds Public
Performance |
| Timeline |
| Select Sector |
| Vanguard Funds Public |
Select Sector and Vanguard Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Sector and Vanguard Funds
The main advantage of trading using opposite Select Sector and Vanguard Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector position performs unexpectedly, Vanguard Funds 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 Funds will offset losses from the drop in Vanguard Funds' long position.| Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard Index Funds | Select Sector vs. Vanguard STAR Funds | Select Sector vs. SPDR SP 500 |
| Vanguard Funds vs. Vanguard Index Funds | Vanguard Funds vs. Vanguard Index Funds | Vanguard Funds vs. Vanguard STAR Funds | Vanguard Funds vs. SPDR SP 500 |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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