Correlation Between Vanguard Diversified and Vanguard Strategic

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

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

Diversification Opportunities for Vanguard Diversified and Vanguard Strategic

0.95

Correlation Coefficient

Vanguard Diversified  Vanguard Strategic

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Diversified Equity and Vanguard Strategic Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Strategic and Vanguard Diversified 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 Diversified Equity are associated (or correlated) with Vanguard Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Strategic has no effect on the direction of Vanguard Diversified i.e., Vanguard Diversified and Vanguard Strategic go up and down completely randomly.

Pair Corralation between Vanguard Diversified and Vanguard Strategic

Assuming the 90 days horizon Vanguard Diversified Equity is expected to generate 0.89 times more return on investment than Vanguard Strategic. However, Vanguard Diversified Equity is 1.12 times less risky than Vanguard Strategic. It trades about -0.09 of its potential returns per unit of risk. Vanguard Strategic Small Cap is currently generating about -0.12 per unit of risk. If you would invest  5,104  in Vanguard Diversified Equity on December 30, 2024 and sell it today you would lose (316.00) from holding Vanguard Diversified Equity or give up 6.19% of portfolio value over 90 days.

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

Vanguard Diversified Equity  vs.  Vanguard Strategic Small Cap

Vanguard Diversified

Risk-Adjusted Performance

Very Weak

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

Vanguard Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Strategic Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Diversified and Vanguard Strategic

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

The idea behind Vanguard Diversified Equity and Vanguard Strategic Small Cap 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.