Correlation Between Global X and Vanguard

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

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

Diversification Opportunities for Global X and Vanguard

0.53

Correlation Coefficient

Global X  Vanguard

Very weak diversification

The 3 months correlation between Global and Vanguard is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Global X USD and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Global X 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 Global X USD are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Global X i.e., Global X and Vanguard go up and down completely randomly.

Pair Corralation between Global X and Vanguard

Assuming the 90 days trading horizon Global X is expected to generate 9.13 times less return on investment than Vanguard. But when comparing it to its historical volatility, Global X USD is 10.95 times less risky than Vanguard. It trades about 0.24 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  13,884  in Vanguard SP 500 on October 8, 2024 and sell it today you would earn a total of  1,341  from holding Vanguard SP 500 or generate 9.66% return on investment over 90 days.

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

Global X USD  vs.  Vanguard SP 500

Global X USD

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X USD are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Global X is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Global X and Vanguard

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

The idea behind Global X USD and Vanguard SP 500 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.