Correlation Between VanEck Defense and Vanguard FTSE

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

By analyzing existing cross correlation between VanEck Defense ETF and Vanguard FTSE All World, you can compare the effects of market volatilities on VanEck Defense and Vanguard FTSE 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 VanEck Defense with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Defense and Vanguard FTSE.

Diversification Opportunities for VanEck Defense and Vanguard FTSE

0.8

Correlation Coefficient

VanEck Defense  Vanguard FTSE

Very poor diversification

The 3 months correlation between VanEck and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Defense ETF and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All and VanEck Defense 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 VanEck Defense ETF are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All has no effect on the direction of VanEck Defense i.e., VanEck Defense and Vanguard FTSE go up and down completely randomly.

Pair Corralation between VanEck Defense and Vanguard FTSE

Assuming the 90 days trading horizon VanEck Defense ETF is expected to under-perform the Vanguard FTSE. In addition to that, VanEck Defense is 1.96 times more volatile than Vanguard FTSE All World. It trades about -0.19 of its total potential returns per unit of risk. Vanguard FTSE All World is currently generating about -0.06 per unit of volatility. If you would invest  13,472  in Vanguard FTSE All World on September 23, 2024 and sell it today you would lose (96.00) from holding Vanguard FTSE All World or give up 0.71% of portfolio value over 90 days.

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

VanEck Defense ETF  vs.  Vanguard FTSE All World

VanEck Defense ETF

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard FTSE All

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with VanEck Defense and Vanguard FTSE

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

The idea behind VanEck Defense ETF and Vanguard FTSE All World 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.