Correlation Between Vanguard Consumer and Vanguard Growth

Can any of the company-specific risk be diversified away by investing in both Vanguard Consumer 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 Consumer 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 Consumer Discretionary and Vanguard Growth Index, you can compare the effects of market volatilities on Vanguard Consumer 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 Consumer with a short position of Vanguard Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Consumer and Vanguard Growth.

Diversification Opportunities for Vanguard Consumer and Vanguard Growth

0.75

Correlation Coefficient

Vanguard Consumer  Vanguard Growth

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index 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 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 Index has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and Vanguard Growth go up and down completely randomly.

Pair Corralation between Vanguard Consumer and Vanguard Growth

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to under-perform the Vanguard Growth. In addition to that, Vanguard Consumer is 1.09 times more volatile than Vanguard Growth Index. It trades about -0.06 of its total potential returns per unit of risk. Vanguard Growth Index is currently generating about -0.02 per unit of volatility. If you would invest  41,234  in Vanguard Growth Index on December 2, 2024 and sell it today you would lose (661.00) from holding Vanguard Growth Index or give up 1.6% of portfolio value over 90 days.

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

Vanguard Consumer Discretionar  vs.  Vanguard Growth Index

Vanguard Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Consumer Discretionary has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Growth Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Growth Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Consumer and Vanguard Growth

The main advantage of trading using opposite Vanguard Consumer and Vanguard Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Consumer 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 Consumer Discretionary and Vanguard Growth Index 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.