Correlation Between Banking Fund and Vanguard Financials

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Can any of the company-specific risk be diversified away by investing in both Banking Fund and Vanguard Financials 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 Banking Fund and Vanguard Financials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banking Fund Investor and Vanguard Financials Index, you can compare the effects of market volatilities on Banking Fund and Vanguard Financials 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 Banking Fund with a short position of Vanguard Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Vanguard Financials.

Diversification Opportunities for Banking Fund and Vanguard Financials

BANKINGVanguardDiversified AwayBANKINGVanguardDiversified Away100%
0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between BANKING and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Investor and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Banking Fund 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 Banking Fund Investor are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Banking Fund i.e., Banking Fund and Vanguard Financials go up and down completely randomly.

Pair Corralation between Banking Fund and Vanguard Financials

Assuming the 90 days horizon Banking Fund is expected to generate 1.22 times less return on investment than Vanguard Financials. In addition to that, Banking Fund is 1.21 times more volatile than Vanguard Financials Index. It trades about 0.05 of its total potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.07 per unit of volatility. If you would invest  6,022  in Vanguard Financials Index on November 26, 2024 and sell it today you would earn a total of  154.00  from holding Vanguard Financials Index or generate 2.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Banking Fund Investor  vs.  Vanguard Financials Index

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -8-6-4-20246
JavaScript chart by amCharts 3.21.15RYKIX VFAIX
       Timeline  
Banking Fund Investor 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Banking Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Banking Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb100102104106108110112
Vanguard Financials Index 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Vanguard Financials Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Financials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb585960616263

Banking Fund and Vanguard Financials Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.88-1.41-0.94-0.47-0.030.390.861.331.82.27 0.10.20.30.4
JavaScript chart by amCharts 3.21.15RYKIX VFAIX
       Returns  

Pair Trading with Banking Fund and Vanguard Financials

The main advantage of trading using opposite Banking Fund and Vanguard Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund position performs unexpectedly, Vanguard Financials 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 Financials will offset losses from the drop in Vanguard Financials' long position.
The idea behind Banking Fund Investor and Vanguard Financials 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 Stocks Directory module to find actively traded stocks across global markets.

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