Correlation Between Global Resources and Vanguard Energy

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

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

Diversification Opportunities for Global Resources and Vanguard Energy

0.67

Correlation Coefficient

Global Resources  Vanguard Energy

Poor diversification

The 3 months correlation between Global and Vanguard is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Global Resources Fund and Vanguard Energy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy Index and Global Resources 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 Resources Fund are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy Index has no effect on the direction of Global Resources i.e., Global Resources and Vanguard Energy go up and down completely randomly.

Pair Corralation between Global Resources and Vanguard Energy

Assuming the 90 days horizon Global Resources Fund is expected to under-perform the Vanguard Energy. In addition to that, Global Resources is 1.02 times more volatile than Vanguard Energy Index. It trades about -0.09 of its total potential returns per unit of risk. Vanguard Energy Index is currently generating about -0.07 per unit of volatility. If you would invest  6,344  in Vanguard Energy Index on October 11, 2024 and sell it today you would lose (118.00) from holding Vanguard Energy Index or give up 1.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Global Resources Fund  vs.  Vanguard Energy Index

Global Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Vanguard Energy Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Resources and Vanguard Energy

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

The idea behind Global Resources Fund and Vanguard Energy 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.