Correlation Between Value Fund and Vanguard International

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

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

Diversification Opportunities for Value Fund and Vanguard International

0.71

Correlation Coefficient

Value Fund  Vanguard International

Poor diversification

The 3 months correlation between Value and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Investor and Vanguard International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International and Value 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 Value Fund Investor are associated (or correlated) with Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of Value Fund i.e., Value Fund and Vanguard International go up and down completely randomly.

Pair Corralation between Value Fund and Vanguard International

Assuming the 90 days horizon Value Fund is expected to generate 5.14 times less return on investment than Vanguard International. But when comparing it to its historical volatility, Value Fund Investor is 1.27 times less risky than Vanguard International. It trades about 0.01 of its potential returns per unit of risk. Vanguard International Growth is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,130  in Vanguard International Growth on October 20, 2024 and sell it today you would earn a total of  1,302  from holding Vanguard International Growth or generate 14.26% return on investment over 90 days.

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

Value Fund Investor  vs.  Vanguard International Growth

Value Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Value Fund and Vanguard International

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

The idea behind Value Fund Investor and Vanguard International Growth 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.