Correlation Between Vanguard Funds and Xtrackers

Can any of the company-specific risk be diversified away by investing in both Vanguard Funds and Xtrackers 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 Xtrackers 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 Xtrackers II , you can compare the effects of market volatilities on Vanguard Funds and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Funds and Xtrackers.

Diversification Opportunities for Vanguard Funds and Xtrackers

0.3

Correlation Coefficient

Vanguard Funds  Xtrackers

Weak diversification

The 3 months correlation between Vanguard and Xtrackers is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Funds PLC and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of Vanguard Funds i.e., Vanguard Funds and Xtrackers go up and down completely randomly.

Pair Corralation between Vanguard Funds and Xtrackers

Assuming the 90 days trading horizon Vanguard Funds is expected to generate 29.52 times less return on investment than Xtrackers. But when comparing it to its historical volatility, Vanguard Funds PLC is 67.83 times less risky than Xtrackers. It trades about 0.09 of its potential returns per unit of risk. Xtrackers II is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  922.00  in Xtrackers II on October 5, 2024 and sell it today you would lose (170.00) from holding Xtrackers II or give up 18.44% of portfolio value over 90 days.

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

Vanguard Funds PLC  vs.  Xtrackers II

Vanguard Funds PLC

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Vanguard Funds PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vanguard Funds is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Funds and Xtrackers

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

The idea behind Vanguard Funds PLC and Xtrackers II 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.