Correlation Between MicroSectors FANG and Vanguard Momentum

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

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

Diversification Opportunities for MicroSectors FANG and Vanguard Momentum

-0.42

Correlation Coefficient

MicroSectors FANG  Vanguard Momentum

Very good diversification

The 3 months correlation between MicroSectors and Vanguard is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Vanguard Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Momentum Factor and MicroSectors FANG 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 FANG Index are associated (or correlated) with Vanguard Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Momentum Factor has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Vanguard Momentum go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Vanguard Momentum

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Vanguard Momentum. In addition to that, MicroSectors FANG is 4.15 times more volatile than Vanguard Momentum Factor. It trades about -0.12 of its total potential returns per unit of risk. Vanguard Momentum Factor is currently generating about 0.07 per unit of volatility. If you would invest  11,524  in Vanguard Momentum Factor on October 13, 2024 and sell it today you would earn a total of  4,696  from holding Vanguard Momentum Factor or generate 40.75% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  Vanguard Momentum Factor

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Vanguard Momentum Factor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Momentum Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Vanguard Momentum is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and Vanguard Momentum

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

The idea behind MicroSectors FANG Index and Vanguard Momentum Factor 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..