Correlation Between New Economy and Vanguard Federal

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

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

Diversification Opportunities for New Economy and Vanguard Federal

-0.48

Correlation Coefficient

New Economy  Vanguard Federal

Very good diversification

The 3 months correlation between New and Vanguard is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Vanguard Federal Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Federal Money and New Economy 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 New Economy Fund are associated (or correlated) with Vanguard Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Federal Money has no effect on the direction of New Economy i.e., New Economy and Vanguard Federal go up and down completely randomly.

Pair Corralation between New Economy and Vanguard Federal

Assuming the 90 days horizon New Economy Fund is expected to under-perform the Vanguard Federal. In addition to that, New Economy is 12.64 times more volatile than Vanguard Federal Money. It trades about -0.08 of its total potential returns per unit of risk. Vanguard Federal Money is currently generating about 0.13 per unit of volatility. If you would invest  99.00  in Vanguard Federal Money on October 20, 2024 and sell it today you would earn a total of  1.00  from holding Vanguard Federal Money or generate 1.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

New Economy Fund  vs.  Vanguard Federal Money

New Economy Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Federal Money

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Federal Money are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Federal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New Economy and Vanguard Federal

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

The idea behind New Economy Fund and Vanguard Federal Money 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.