Correlation Between MicroSectors Solactive and Vanguard Ultra

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

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

Diversification Opportunities for MicroSectors Solactive and Vanguard Ultra

0.86

Correlation Coefficient

MicroSectors Solactive  Vanguard Ultra

Very poor diversification

The 3 months correlation between MicroSectors and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and Vanguard Ultra Short Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Ultra Short and MicroSectors Solactive 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 MicroSectors Solactive FANG are associated (or correlated) with Vanguard Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Ultra Short has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and Vanguard Ultra go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and Vanguard Ultra

Given the investment horizon of 90 days MicroSectors Solactive FANG is expected to generate 141.33 times more return on investment than Vanguard Ultra. However, MicroSectors Solactive is 141.33 times more volatile than Vanguard Ultra Short Bond. It trades about 0.15 of its potential returns per unit of risk. Vanguard Ultra Short Bond is currently generating about 0.59 per unit of risk. If you would invest  16,406  in MicroSectors Solactive FANG on September 27, 2024 and sell it today you would earn a total of  2,214  from holding MicroSectors Solactive FANG or generate 13.5% return on investment over 90 days.

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

MicroSectors Solactive FANG  vs.  Vanguard Ultra Short Bond

MicroSectors Solactive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, MicroSectors Solactive showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Ultra Short

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Ultra Short Bond are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Ultra is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors Solactive and Vanguard Ultra

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

The idea behind MicroSectors Solactive FANG and Vanguard Ultra Short Bond 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.