Correlation Between Vanguard FTSE and Overlay Shares

Can any of the company-specific risk be diversified away by investing in both Vanguard FTSE and Overlay Shares 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 Overlay Shares 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 Overlay Shares Foreign, you can compare the effects of market volatilities on Vanguard FTSE and Overlay Shares 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 Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and Overlay Shares.

Diversification Opportunities for Vanguard FTSE and Overlay Shares

0.97

Correlation Coefficient

Vanguard FTSE  Overlay Shares

Almost no diversification

The 3 months correlation between Vanguard and Overlay is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and Overlay Shares Foreign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Foreign 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Foreign has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Overlay Shares go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Overlay Shares

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to under-perform the Overlay Shares. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard FTSE Developed is 1.13 times less risky than Overlay Shares. The etf trades about -0.04 of its potential returns per unit of risk. The Overlay Shares Foreign is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,517  in Overlay Shares Foreign on September 12, 2024 and sell it today you would lose (14.00) from holding Overlay Shares Foreign or give up 0.56% of portfolio value over 90 days.

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

Vanguard FTSE Developed  vs.  Overlay Shares Foreign

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Overlay Shares Foreign

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard FTSE and Overlay Shares

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

The idea behind Vanguard FTSE Developed and Overlay Shares Foreign 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 Stocks Directory module to find actively traded stocks across global markets.