Correlation Between Dana Large and Vanguard Equity

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

By analyzing existing cross correlation between Dana Large Cap and Vanguard Equity Income, you can compare the effects of market volatilities on Dana Large and Vanguard Equity 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 Dana Large with a short position of Vanguard Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dana Large and Vanguard Equity.

Diversification Opportunities for Dana Large and Vanguard Equity

0.65

Correlation Coefficient

Dana Large  Vanguard Equity

Poor diversification

The 3 months correlation between Dana and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Vanguard Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Equity Income and Dana Large 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 Dana Large Cap are associated (or correlated) with Vanguard Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Equity Income has no effect on the direction of Dana Large i.e., Dana Large and Vanguard Equity go up and down completely randomly.

Pair Corralation between Dana Large and Vanguard Equity

Assuming the 90 days horizon Dana Large Cap is expected to under-perform the Vanguard Equity. In addition to that, Dana Large is 1.95 times more volatile than Vanguard Equity Income. It trades about -0.13 of its total potential returns per unit of risk. Vanguard Equity Income is currently generating about -0.08 per unit of volatility. If you would invest  4,726  in Vanguard Equity Income on November 28, 2024 and sell it today you would lose (323.00) from holding Vanguard Equity Income or give up 6.83% of portfolio value over 90 days.

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

Dana Large Cap  vs.  Vanguard Equity Income

Dana Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dana Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Equity Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Dana Large and Vanguard Equity

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

The idea behind Dana Large Cap and Vanguard Equity Income 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.