Correlation Between Vanguard Materials and VanEck Steel

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

Diversification Opportunities for Vanguard Materials and VanEck Steel

0.84

Correlation Coefficient

Vanguard Materials  VanEck Steel

Very poor diversification

The 3 months correlation between Vanguard and VanEck is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and VanEck Steel ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Steel 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 Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Steel ETF has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and VanEck Steel go up and down completely randomly.

Pair Corralation between Vanguard Materials and VanEck Steel

Considering the 90-day investment horizon Vanguard Materials is expected to generate 2.11 times less return on investment than VanEck Steel. But when comparing it to its historical volatility, Vanguard Materials Index is 1.94 times less risky than VanEck Steel. It trades about 0.11 of its potential returns per unit of risk. VanEck Steel ETF is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,334  in VanEck Steel ETF on September 3, 2024 and sell it today you would earn a total of  797.00  from holding VanEck Steel ETF or generate 12.58% return on investment over 90 days.

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

Vanguard Materials Index  vs.  VanEck Steel ETF

Vanguard Materials Index

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Materials is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

VanEck Steel ETF

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Steel ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, VanEck Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Materials and VanEck Steel

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

The idea behind Vanguard Materials Index and VanEck Steel 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.