Correlation Between Vanguard Mega and Vanguard Russell

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

By analyzing existing cross correlation between Vanguard Mega Cap and Vanguard Russell 1000, you can compare the effects of market volatilities on Vanguard Mega and Vanguard Russell 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 Vanguard Mega with a short position of Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mega and Vanguard Russell.

Diversification Opportunities for Vanguard Mega and Vanguard Russell

1.0

Correlation Coefficient

Vanguard Mega  Vanguard Russell

No risk reduction

The 3 months correlation between Vanguard and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mega Cap and Vanguard Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 1000 and Vanguard Mega 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 Vanguard Mega Cap are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 1000 has no effect on the direction of Vanguard Mega i.e., Vanguard Mega and Vanguard Russell go up and down completely randomly.

Pair Corralation between Vanguard Mega and Vanguard Russell

Considering the 90-day investment horizon Vanguard Mega Cap is expected to generate 1.02 times more return on investment than Vanguard Russell. However, Vanguard Mega is 1.02 times more volatile than Vanguard Russell 1000. It trades about 0.19 of its potential returns per unit of risk. Vanguard Russell 1000 is currently generating about 0.19 per unit of risk. If you would invest  30,506  in Vanguard Mega Cap on September 3, 2024 and sell it today you would earn a total of  3,839  from holding Vanguard Mega Cap or generate 12.58% return on investment over 90 days.

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

Vanguard Mega Cap  vs.  Vanguard Russell 1000

Vanguard Mega Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal technical and fundamental indicators, Vanguard Mega may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Russell 1000

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 1000 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Vanguard Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Mega and Vanguard Russell

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

The idea behind Vanguard Mega Cap and Vanguard Russell 1000 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.