Correlation Between Vanguard Materials and IndexIQ

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

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

Diversification Opportunities for Vanguard Materials and IndexIQ

-0.38

Correlation Coefficient

Vanguard Materials  IndexIQ

Very good diversification

The 3 months correlation between Vanguard and IndexIQ is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ and Vanguard Materials 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 Materials Index are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and IndexIQ go up and down completely randomly.

Pair Corralation between Vanguard Materials and IndexIQ

Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 1.0 times more return on investment than IndexIQ. However, Vanguard Materials is 1.0 times more volatile than IndexIQ. It trades about 0.03 of its potential returns per unit of risk. IndexIQ is currently generating about 0.03 per unit of risk. If you would invest  16,518  in Vanguard Materials Index on September 20, 2024 and sell it today you would earn a total of  2,451  from holding Vanguard Materials Index or generate 14.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.28%
Values	Daily Returns

Vanguard Materials Index  vs.  IndexIQ

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, IndexIQ is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Materials and IndexIQ

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

The idea behind Vanguard Materials Index and IndexIQ 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.