Correlation Between Dearborn Partners and Vanguard Growth

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

By analyzing existing cross correlation between Dearborn Partners Rising and Vanguard Growth Index, you can compare the effects of market volatilities on Dearborn Partners and Vanguard Growth 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 Dearborn Partners with a short position of Vanguard Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dearborn Partners and Vanguard Growth.

Diversification Opportunities for Dearborn Partners and Vanguard Growth

0.24

Correlation Coefficient

Dearborn Partners  Vanguard Growth

Modest diversification

The 3 months correlation between Dearborn and Vanguard is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dearborn Partners Rising and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index and Dearborn Partners 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 Dearborn Partners Rising are associated (or correlated) with Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of Dearborn Partners i.e., Dearborn Partners and Vanguard Growth go up and down completely randomly.

Pair Corralation between Dearborn Partners and Vanguard Growth

Assuming the 90 days horizon Dearborn Partners Rising is expected to generate 0.52 times more return on investment than Vanguard Growth. However, Dearborn Partners Rising is 1.91 times less risky than Vanguard Growth. It trades about 0.01 of its potential returns per unit of risk. Vanguard Growth Index is currently generating about -0.11 per unit of risk. If you would invest  2,518  in Dearborn Partners Rising on December 23, 2024 and sell it today you would earn a total of  2.00  from holding Dearborn Partners Rising or generate 0.08% return on investment over 90 days.

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

Dearborn Partners Rising  vs.  Vanguard Growth Index

Dearborn Partners Rising

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dearborn Partners Rising has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dearborn Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Growth Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Growth Index 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 Dearborn Partners and Vanguard Growth

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

The idea behind Dearborn Partners Rising and Vanguard Growth Index 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .