Correlation Between Absolute Core and Vanguard

Can any of the company-specific risk be diversified away by investing in both Absolute Core and Vanguard 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 Absolute Core and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Absolute Core Strategy and Vanguard SP 500, you can compare the effects of market volatilities on Absolute Core and Vanguard 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 Absolute Core with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Core and Vanguard.

Diversification Opportunities for Absolute Core and Vanguard

0.3

Correlation Coefficient

Absolute Core  Vanguard

Weak diversification

The 3 months correlation between Absolute and Vanguard is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Core Strategy and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Absolute Core 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 Absolute Core Strategy are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Absolute Core i.e., Absolute Core and Vanguard go up and down completely randomly.

Pair Corralation between Absolute Core and Vanguard

Given the investment horizon of 90 days Absolute Core Strategy is expected to under-perform the Vanguard. But the etf apears to be less risky and, when comparing its historical volatility, Absolute Core Strategy is 1.77 times less risky than Vanguard. The etf trades about -0.01 of its potential returns per unit of risk. The Vanguard SP 500 is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  33,550  in Vanguard SP 500 on September 17, 2024 and sell it today you would earn a total of  4,280  from holding Vanguard SP 500 or generate 12.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Absolute Core Strategy  vs.  Vanguard SP 500

Absolute Core Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absolute Core Strategy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Absolute Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard SP 500

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Absolute Core and Vanguard

The main advantage of trading using opposite Absolute Core and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Core position performs unexpectedly, Vanguard 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 will offset losses from the drop in Vanguard's long position.

The idea behind Absolute Core Strategy and Vanguard SP 500 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.