Correlation Between Vanguard Consumer and ALPS

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

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

Diversification Opportunities for Vanguard Consumer and ALPS

0.88

Correlation Coefficient

Vanguard Consumer  ALPS

Very poor diversification

The 3 months correlation between Vanguard and ALPS is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS and Vanguard Consumer 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 Consumer Discretionary are associated (or correlated) with ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and ALPS go up and down completely randomly.

Pair Corralation between Vanguard Consumer and ALPS

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to generate 1.02 times more return on investment than ALPS. However, Vanguard Consumer is 1.02 times more volatile than ALPS. It trades about 0.1 of its potential returns per unit of risk. ALPS is currently generating about 0.07 per unit of risk. If you would invest  28,116  in Vanguard Consumer Discretionary on September 21, 2024 and sell it today you would earn a total of  9,953  from holding Vanguard Consumer Discretionary or generate 35.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	84.76%
Values	Daily Returns

Vanguard Consumer Discretionar  vs.  ALPS

Vanguard Consumer

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Vanguard Consumer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ALPS

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Consumer and ALPS

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

The idea behind Vanguard Consumer Discretionary and ALPS 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.