Correlation Between Vanguard Balanced and Vanguard Canadian

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

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

Diversification Opportunities for Vanguard Balanced and Vanguard Canadian

0.82

Correlation Coefficient

Vanguard Balanced  Vanguard Canadian

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Balanced Portfolio and Vanguard Canadian Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Canadian Long and Vanguard Balanced 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 Balanced Portfolio are associated (or correlated) with Vanguard Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Canadian Long has no effect on the direction of Vanguard Balanced i.e., Vanguard Balanced and Vanguard Canadian go up and down completely randomly.

Pair Corralation between Vanguard Balanced and Vanguard Canadian

Assuming the 90 days trading horizon Vanguard Balanced Portfolio is expected to generate 0.94 times more return on investment than Vanguard Canadian. However, Vanguard Balanced Portfolio is 1.07 times less risky than Vanguard Canadian. It trades about -0.26 of its potential returns per unit of risk. Vanguard Canadian Long Term is currently generating about -0.35 per unit of risk. If you would invest  3,430  in Vanguard Balanced Portfolio on October 10, 2024 and sell it today you would lose (97.00) from holding Vanguard Balanced Portfolio or give up 2.83% of portfolio value over 90 days.

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

Vanguard Balanced Portfolio  vs.  Vanguard Canadian Long Term

Vanguard Balanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Balanced Portfolio are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Canadian Long

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Canadian Long Term are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Vanguard Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Balanced and Vanguard Canadian

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

The idea behind Vanguard Balanced Portfolio and Vanguard Canadian Long Term 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.