Correlation Between Vanguard FTSE and Vanguard Global

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

By analyzing existing cross correlation between Vanguard FTSE Developed and Vanguard Global Momentum, you can compare the effects of market volatilities on Vanguard FTSE and Vanguard Global 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 FTSE with a short position of Vanguard Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and Vanguard Global.

Diversification Opportunities for Vanguard FTSE and Vanguard Global

0.24

Correlation Coefficient

Vanguard FTSE  Vanguard Global

Modest diversification

The 3 months correlation between Vanguard and Vanguard is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and Vanguard Global Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Global Momentum and Vanguard FTSE 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 FTSE Developed are associated (or correlated) with Vanguard Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Global Momentum has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Vanguard Global go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Vanguard Global

Assuming the 90 days horizon Vanguard FTSE is expected to generate 3.79 times less return on investment than Vanguard Global. But when comparing it to its historical volatility, Vanguard FTSE Developed is 1.14 times less risky than Vanguard Global. It trades about 0.07 of its potential returns per unit of risk. Vanguard Global Momentum is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5,849  in Vanguard Global Momentum on September 12, 2024 and sell it today you would earn a total of  772.00  from holding Vanguard Global Momentum or generate 13.2% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  Vanguard Global Momentum

Vanguard FTSE Developed

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Global Momentum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Global Momentum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Global displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard FTSE and Vanguard Global

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

The idea behind Vanguard FTSE Developed and Vanguard Global Momentum 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.