Correlation Between Horizon Defensive and Vanguard Value

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

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

Diversification Opportunities for Horizon Defensive and Vanguard Value

0.83

Correlation Coefficient

Horizon Defensive  Vanguard Value

Very poor diversification

The 3 months correlation between Horizon and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Defensive Equity and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index and Horizon Defensive 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 Horizon Defensive Equity are associated (or correlated) with Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Horizon Defensive i.e., Horizon Defensive and Vanguard Value go up and down completely randomly.

Pair Corralation between Horizon Defensive and Vanguard Value

Assuming the 90 days horizon Horizon Defensive is expected to generate 1.53 times less return on investment than Vanguard Value. In addition to that, Horizon Defensive is 1.28 times more volatile than Vanguard Value Index. It trades about 0.06 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about 0.12 per unit of volatility. If you would invest  5,394  in Vanguard Value Index on September 23, 2024 and sell it today you would earn a total of  1,250  from holding Vanguard Value Index or generate 23.17% return on investment over 90 days.

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

Horizon Defensive Equity  vs.  Vanguard Value Index

Horizon Defensive Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Horizon Defensive and Vanguard Value

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

The idea behind Horizon Defensive Equity and Vanguard Value 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.