Correlation Between Consumer Discretionary and Vanguard Industrials

Can any of the company-specific risk be diversified away by investing in both Consumer Discretionary and Vanguard Industrials 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 Industrials 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 Industrials Index, you can compare the effects of market volatilities on Consumer Discretionary and Vanguard Industrials 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 Industrials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and Vanguard Industrials.

Diversification Opportunities for Consumer Discretionary and Vanguard Industrials

0.38

Correlation Coefficient

Consumer Discretionary  Vanguard Industrials

Weak diversification

The 3 months correlation between Consumer and Vanguard is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Portfol and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Consumer Discretionary and Vanguard Industrials

Assuming the 90 days horizon Consumer Discretionary is expected to generate 1.5 times less return on investment than Vanguard Industrials. In addition to that, Consumer Discretionary is 1.32 times more volatile than Vanguard Industrials Index. It trades about 0.04 of its total potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.08 per unit of volatility. If you would invest  10,204  in Vanguard Industrials Index on December 2, 2024 and sell it today you would earn a total of  3,133  from holding Vanguard Industrials Index or generate 30.7% return on investment over 90 days.

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

Consumer Discretionary Portfol  vs.  Vanguard Industrials Index

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 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.

Vanguard Industrials

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Consumer Discretionary and Vanguard Industrials

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

The idea behind Consumer Discretionary Portfolio and Vanguard Industrials 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 Commodity Directory module to find actively traded commodities issued by global exchanges.