Correlation Between Vanguard Consumer and Vanguard Utilities

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

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

Diversification Opportunities for Vanguard Consumer and Vanguard Utilities

0.37

Correlation Coefficient

Vanguard Consumer  Vanguard Utilities

Weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Staples and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities 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 Staples are associated (or correlated) with Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and Vanguard Utilities go up and down completely randomly.

Pair Corralation between Vanguard Consumer and Vanguard Utilities

Considering the 90-day investment horizon Vanguard Consumer Staples is expected to generate 0.54 times more return on investment than Vanguard Utilities. However, Vanguard Consumer Staples is 1.84 times less risky than Vanguard Utilities. It trades about 0.03 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.0 per unit of risk. If you would invest  21,920  in Vanguard Consumer Staples on September 13, 2024 and sell it today you would earn a total of  216.00  from holding Vanguard Consumer Staples or generate 0.99% return on investment over 90 days.

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

Vanguard Consumer Staples  vs.  Vanguard Utilities Index

Vanguard Consumer Staples

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Staples are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Utilities Index

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vanguard Utilities Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard Utilities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Consumer and Vanguard Utilities

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

The idea behind Vanguard Consumer Staples and Vanguard Utilities 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.