Correlation Between Vanguard Balanced and Tekla Life

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

By analyzing existing cross correlation between Vanguard Balanced Index and Tekla Life Sciences, you can compare the effects of market volatilities on Vanguard Balanced and Tekla Life 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 Tekla Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Balanced and Tekla Life.

Diversification Opportunities for Vanguard Balanced and Tekla Life

0.53

Correlation Coefficient

Vanguard Balanced  Tekla Life

Very weak diversification

The 3 months correlation between Vanguard and Tekla is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Balanced Index and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences 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 Index are associated (or correlated) with Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of Vanguard Balanced i.e., Vanguard Balanced and Tekla Life go up and down completely randomly.

Pair Corralation between Vanguard Balanced and Tekla Life

Assuming the 90 days horizon Vanguard Balanced Index is expected to generate 0.47 times more return on investment than Tekla Life. However, Vanguard Balanced Index is 2.11 times less risky than Tekla Life. It trades about -0.06 of its potential returns per unit of risk. Tekla Life Sciences is currently generating about -0.05 per unit of risk. If you would invest  4,875  in Vanguard Balanced Index on December 20, 2024 and sell it today you would lose (119.00) from holding Vanguard Balanced Index or give up 2.44% of portfolio value over 90 days.

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

Vanguard Balanced Index  vs.  Tekla Life Sciences

Vanguard Balanced Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Balanced Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tekla Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tekla Life Sciences has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Tekla Life is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Balanced and Tekla Life

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

The idea behind Vanguard Balanced Index and Tekla Life Sciences 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.