Correlation Between Rational Defensive and Vanguard 500

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Vanguard 500 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 Rational Defensive and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rational Defensive Growth and Vanguard 500 Index, you can compare the effects of market volatilities on Rational Defensive and Vanguard 500 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 Rational Defensive with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Vanguard 500.

Diversification Opportunities for Rational Defensive and Vanguard 500

0.95

Correlation Coefficient

Rational Defensive  Vanguard 500

Almost no diversification

The 3 months correlation between Rational and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Rational Defensive i.e., Rational Defensive and Vanguard 500 go up and down completely randomly.

Pair Corralation between Rational Defensive and Vanguard 500

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 1.21 times more return on investment than Vanguard 500. However, Rational Defensive is 1.21 times more volatile than Vanguard 500 Index. It trades about 0.11 of its potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.08 per unit of risk. If you would invest  6,200  in Rational Defensive Growth on October 8, 2024 and sell it today you would earn a total of  405.00  from holding Rational Defensive Growth or generate 6.53% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Vanguard 500 Index

Rational Defensive Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard 500 Index

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and Vanguard 500

The main advantage of trading using opposite Rational Defensive and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.

The idea behind Rational Defensive Growth and Vanguard 500 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.