Correlation Between Vanguard Emerging and Vanguard Materials

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

By analyzing existing cross correlation between Vanguard Emerging Markets and Vanguard Materials Index, you can compare the effects of market volatilities on Vanguard Emerging and Vanguard Materials 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 Emerging with a short position of Vanguard Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Vanguard Materials.

Diversification Opportunities for Vanguard Emerging and Vanguard Materials

0.59

Correlation Coefficient

Vanguard Emerging  Vanguard Materials

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard Materials go up and down completely randomly.

Pair Corralation between Vanguard Emerging and Vanguard Materials

Assuming the 90 days horizon Vanguard Emerging Markets is expected to generate 0.29 times more return on investment than Vanguard Materials. However, Vanguard Emerging Markets is 3.48 times less risky than Vanguard Materials. It trades about -0.44 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about -0.39 per unit of risk. If you would invest  1,019  in Vanguard Emerging Markets on October 14, 2024 and sell it today you would lose (23.00) from holding Vanguard Emerging Markets or give up 2.26% of portfolio value over 90 days.

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

Vanguard Emerging Markets  vs.  Vanguard Materials Index

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Emerging and Vanguard Materials

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

The idea behind Vanguard Emerging Markets and Vanguard Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.