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

0.28

Correlation Coefficient

Dearborn Partners  Vanguard Growth

Modest diversification

The 3 months correlation between Dearborn and Vanguard is 0.28. 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 under-perform the Vanguard Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dearborn Partners Rising is 1.59 times less risky than Vanguard Growth. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Vanguard Growth Index is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  19,828  in Vanguard Growth Index on October 8, 2024 and sell it today you would earn a total of  1,609  from holding Vanguard Growth Index or generate 8.11% 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

0 of 100

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 forward 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.