Correlation Between Vanguard Total and Xtrackers

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

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

Diversification Opportunities for Vanguard Total and Xtrackers

-0.6

Correlation Coefficient

Vanguard Total  Xtrackers

Excellent diversification

The 3 months correlation between Vanguard and Xtrackers is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 and Vanguard Total 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 Total Bond are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of Vanguard Total i.e., Vanguard Total and Xtrackers go up and down completely randomly.

Pair Corralation between Vanguard Total and Xtrackers

Considering the 90-day investment horizon Vanguard Total Bond is expected to under-perform the Xtrackers. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Total Bond is 2.15 times less risky than Xtrackers. The etf trades about -0.1 of its potential returns per unit of risk. The Xtrackers SP 500 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,134  in Xtrackers SP 500 on September 13, 2024 and sell it today you would earn a total of  409.00  from holding Xtrackers SP 500 or generate 7.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Vanguard Total Bond  vs.  Xtrackers SP 500

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Xtrackers SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Total and Xtrackers

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

The idea behind Vanguard Total Bond and Xtrackers 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.