Correlation Between American Funds and Vanguard Lifestrategy

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

By analyzing existing cross correlation between American Funds Tax Advantaged and Vanguard Lifestrategy Moderate, you can compare the effects of market volatilities on American Funds and Vanguard Lifestrategy 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 American Funds with a short position of Vanguard Lifestrategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Vanguard Lifestrategy.

Diversification Opportunities for American Funds and Vanguard Lifestrategy

0.97

Correlation Coefficient

American Funds  Vanguard Lifestrategy

Almost no diversification

The 3 months correlation between American and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Tax Advantaged and Vanguard Lifestrategy Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Lifestrategy and American Funds 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 American Funds Tax Advantaged are associated (or correlated) with Vanguard Lifestrategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Lifestrategy has no effect on the direction of American Funds i.e., American Funds and Vanguard Lifestrategy go up and down completely randomly.

Pair Corralation between American Funds and Vanguard Lifestrategy

Assuming the 90 days horizon American Funds is expected to generate 1.25 times less return on investment than Vanguard Lifestrategy. But when comparing it to its historical volatility, American Funds Tax Advantaged is 1.4 times less risky than Vanguard Lifestrategy. It trades about 0.15 of its potential returns per unit of risk. Vanguard Lifestrategy Moderate is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,280  in Vanguard Lifestrategy Moderate on September 3, 2024 and sell it today you would earn a total of  119.00  from holding Vanguard Lifestrategy Moderate or generate 3.63% return on investment over 90 days.

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

American Funds Tax Advantaged  vs.  Vanguard Lifestrategy Moderate

American Funds Tax

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Tax Advantaged are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Lifestrategy

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with American Funds and Vanguard Lifestrategy

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

The idea behind American Funds Tax Advantaged and Vanguard Lifestrategy Moderate 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.