Correlation Between Vanguard Global and Vanguard Growth

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

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

Diversification Opportunities for Vanguard Global and Vanguard Growth

0.6

Correlation Coefficient

Vanguard Global  Vanguard Growth

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Global ex US and Vanguard Growth Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Portfolio and Vanguard Global 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 Global ex US are associated (or correlated) with Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Portfolio has no effect on the direction of Vanguard Global i.e., Vanguard Global and Vanguard Growth go up and down completely randomly.

Pair Corralation between Vanguard Global and Vanguard Growth

Assuming the 90 days trading horizon Vanguard Global ex US is expected to generate 0.3 times more return on investment than Vanguard Growth. However, Vanguard Global ex US is 3.37 times less risky than Vanguard Growth. It trades about -0.55 of its potential returns per unit of risk. Vanguard Growth Portfolio is currently generating about -0.2 per unit of risk. If you would invest  2,342  in Vanguard Global ex US on October 10, 2024 and sell it today you would lose (49.00) from holding Vanguard Global ex US or give up 2.09% of portfolio value over 90 days.

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

Vanguard Global ex US  vs.  Vanguard Growth Portfolio

Vanguard Global ex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Global ex US has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Growth Portfolio

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Portfolio are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Growth 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 Global and Vanguard Growth

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

The idea behind Vanguard Global ex US and Vanguard Growth Portfolio 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.