Correlation Between Madison Diversified and Vanguard Total

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

By analyzing existing cross correlation between Madison Diversified Income and Vanguard Total Stock, you can compare the effects of market volatilities on Madison Diversified and Vanguard Total 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 Madison Diversified with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Diversified and Vanguard Total.

Diversification Opportunities for Madison Diversified and Vanguard Total

0.59

Correlation Coefficient

Madison Diversified  Vanguard Total

Very weak diversification

The 3 months correlation between Madison and Vanguard is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Madison Diversified Income and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and Madison Diversified 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 Madison Diversified Income are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Madison Diversified i.e., Madison Diversified and Vanguard Total go up and down completely randomly.

Pair Corralation between Madison Diversified and Vanguard Total

Assuming the 90 days horizon Madison Diversified is expected to generate 1.51 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, Madison Diversified Income is 2.75 times less risky than Vanguard Total. It trades about 0.19 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  27,149  in Vanguard Total Stock on October 26, 2024 and sell it today you would earn a total of  444.00  from holding Vanguard Total Stock or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Madison Diversified Income  vs.  Vanguard Total Stock

Madison Diversified

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Diversified Income are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Madison Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Total Stock

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Diversified and Vanguard Total

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

The idea behind Madison Diversified Income and Vanguard Total Stock 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.