Correlation Between Consumer Discretionary and Vanguard Consumer

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

By analyzing existing cross correlation between Consumer Discretionary Portfolio and Vanguard Sumer Discretionary, you can compare the effects of market volatilities on Consumer Discretionary and Vanguard Consumer 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 Consumer Discretionary with a short position of Vanguard Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and Vanguard Consumer.

Diversification Opportunities for Consumer Discretionary and Vanguard Consumer

1.0

Correlation Coefficient

Consumer Discretionary  Vanguard Consumer

No risk reduction

The 3 months correlation between Consumer and VANGUARD is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Portfol and Vanguard Sumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sumer Discr and Consumer Discretionary 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 Consumer Discretionary Portfolio are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sumer Discr has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Consumer Discretionary and Vanguard Consumer

Assuming the 90 days horizon Consumer Discretionary Portfolio is expected to under-perform the Vanguard Consumer. But the mutual fund apears to be less risky and, when comparing its historical volatility, Consumer Discretionary Portfolio is 1.0 times less risky than Vanguard Consumer. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Vanguard Sumer Discretionary is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  19,443  in Vanguard Sumer Discretionary on December 31, 2024 and sell it today you would lose (2,563) from holding Vanguard Sumer Discretionary or give up 13.18% of portfolio value over 90 days.

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

Consumer Discretionary Portfol  vs.  Vanguard Sumer Discretionary

Consumer Discretionary

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Discretionary Portfolio 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 basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Sumer Discr

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Sumer Discretionary 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 basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Consumer Discretionary and Vanguard Consumer

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

The idea behind Consumer Discretionary Portfolio and Vanguard Sumer Discretionary 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.