Correlation Between Vanguard Selected and Vanguard Diversified

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

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

Diversification Opportunities for Vanguard Selected and Vanguard Diversified

0.91

Correlation Coefficient

Vanguard Selected  Vanguard Diversified

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Selected Value and Vanguard Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Diversified and Vanguard Selected 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 Selected Value are associated (or correlated) with Vanguard Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Diversified has no effect on the direction of Vanguard Selected i.e., Vanguard Selected and Vanguard Diversified go up and down completely randomly.

Pair Corralation between Vanguard Selected and Vanguard Diversified

Assuming the 90 days horizon Vanguard Selected is expected to generate 1.49 times less return on investment than Vanguard Diversified. In addition to that, Vanguard Selected is 1.19 times more volatile than Vanguard Diversified Equity. It trades about 0.11 of its total potential returns per unit of risk. Vanguard Diversified Equity is currently generating about 0.2 per unit of volatility. If you would invest  5,029  in Vanguard Diversified Equity on September 12, 2024 and sell it today you would earn a total of  480.00  from holding Vanguard Diversified Equity or generate 9.54% return on investment over 90 days.

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

Vanguard Selected Value  vs.  Vanguard Diversified Equity

Vanguard Selected Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Selected Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Selected is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Diversified

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Diversified Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Selected and Vanguard Diversified

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

The idea behind Vanguard Selected Value and Vanguard Diversified Equity 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.