Correlation Between Vanguard Funds and Source KBW

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

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

Diversification Opportunities for Vanguard Funds and Source KBW

0.95

Correlation Coefficient

Vanguard Funds  Source KBW

Almost no diversification

The 3 months correlation between Vanguard and Source is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Funds PLC and Source KBW NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source KBW NASDAQ and Vanguard 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 Vanguard Funds PLC are associated (or correlated) with Source KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source KBW NASDAQ has no effect on the direction of Vanguard Funds i.e., Vanguard Funds and Source KBW go up and down completely randomly.

Pair Corralation between Vanguard Funds and Source KBW

Assuming the 90 days trading horizon Vanguard Funds is expected to generate 4.21 times less return on investment than Source KBW. But when comparing it to its historical volatility, Vanguard Funds PLC is 2.14 times less risky than Source KBW. It trades about 0.11 of its potential returns per unit of risk. Source KBW NASDAQ is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,951  in Source KBW NASDAQ on September 27, 2024 and sell it today you would earn a total of  677.00  from holding Source KBW NASDAQ or generate 13.67% return on investment over 90 days.

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

Vanguard Funds PLC  vs.  Source KBW NASDAQ

Vanguard Funds PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Source KBW NASDAQ

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Source KBW NASDAQ are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, Source KBW exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Funds and Source KBW

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

The idea behind Vanguard Funds PLC and Source KBW NASDAQ 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.