Correlation Between Vanguard Equity and Rydex Inverse

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

By analyzing existing cross correlation between Vanguard Equity Income and Rydex Inverse Nasdaq 100, you can compare the effects of market volatilities on Vanguard Equity and Rydex Inverse 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 Equity with a short position of Rydex Inverse. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Equity and Rydex Inverse.

Diversification Opportunities for Vanguard Equity and Rydex Inverse

-0.39

Correlation Coefficient

Vanguard Equity  Rydex Inverse

Very good diversification

The 3 months correlation between Vanguard and Rydex is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Equity Income and Rydex Inverse Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rydex Inverse Nasdaq and Vanguard Equity 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 Equity Income are associated (or correlated) with Rydex Inverse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rydex Inverse Nasdaq has no effect on the direction of Vanguard Equity i.e., Vanguard Equity and Rydex Inverse go up and down completely randomly.

Pair Corralation between Vanguard Equity and Rydex Inverse

Assuming the 90 days horizon Vanguard Equity is expected to generate 8.95 times less return on investment than Rydex Inverse. But when comparing it to its historical volatility, Vanguard Equity Income is 3.73 times less risky than Rydex Inverse. It trades about 0.05 of its potential returns per unit of risk. Rydex Inverse Nasdaq 100 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  10,150  in Rydex Inverse Nasdaq 100 on December 22, 2024 and sell it today you would earn a total of  1,745  from holding Rydex Inverse Nasdaq 100 or generate 17.19% return on investment over 90 days.

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

Vanguard Equity Income  vs.  Rydex Inverse Nasdaq 100

Vanguard Equity Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Equity Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rydex Inverse Nasdaq

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rydex Inverse Nasdaq 100 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Rydex Inverse showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Equity and Rydex Inverse

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

The idea behind Vanguard Equity Income and Rydex Inverse Nasdaq 100 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..