Correlation Between Vanguard FTSE and Alerian Energy

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

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

Diversification Opportunities for Vanguard FTSE and Alerian Energy

0.31

Correlation Coefficient

Vanguard FTSE  Alerian Energy

Weak diversification

The 3 months correlation between Vanguard and Alerian is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and Alerian Energy Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alerian Energy Infra and Vanguard FTSE 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 FTSE Developed are associated (or correlated) with Alerian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alerian Energy Infra has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Alerian Energy go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Alerian Energy

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to generate 0.71 times more return on investment than Alerian Energy. However, Vanguard FTSE Developed is 1.41 times less risky than Alerian Energy. It trades about 0.19 of its potential returns per unit of risk. Alerian Energy Infrastructure is currently generating about 0.12 per unit of risk. If you would invest  4,785  in Vanguard FTSE Developed on December 21, 2024 and sell it today you would earn a total of  473.00  from holding Vanguard FTSE Developed or generate 9.89% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  Alerian Energy Infrastructure

Vanguard FTSE Developed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alerian Energy Infra

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alerian Energy Infrastructure are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Alerian Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard FTSE and Alerian Energy

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

The idea behind Vanguard FTSE Developed and Alerian Energy Infrastructure 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.