Correlation Between Vanguard Materials and VanEck Agribusiness

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

Diversification Opportunities for Vanguard Materials and VanEck Agribusiness

0.78

Correlation Coefficient

Vanguard Materials  VanEck Agribusiness

Poor diversification

The 3 months correlation between Vanguard and VanEck is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and VanEck Agribusiness ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Agribusiness ETF 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 VanEck Agribusiness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Agribusiness ETF has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and VanEck Agribusiness go up and down completely randomly.

Pair Corralation between Vanguard Materials and VanEck Agribusiness

Considering the 90-day investment horizon Vanguard Materials Index is expected to under-perform the VanEck Agribusiness. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Materials Index is 1.03 times less risky than VanEck Agribusiness. The etf trades about -0.54 of its potential returns per unit of risk. The VanEck Agribusiness ETF is currently generating about -0.35 of returns per unit of risk over similar time horizon. If you would invest  6,924  in VanEck Agribusiness ETF on September 27, 2024 and sell it today you would lose (435.00) from holding VanEck Agribusiness ETF or give up 6.28% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  VanEck Agribusiness ETF

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.

VanEck Agribusiness ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Agribusiness ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Vanguard Materials and VanEck Agribusiness

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

The idea behind Vanguard Materials Index and VanEck Agribusiness ETF 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.