Correlation Between Vanguard Energy and Free Market

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

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

Diversification Opportunities for Vanguard Energy and Free Market

0.35

Correlation Coefficient

Vanguard Energy  Free Market

Weak diversification

The 3 months correlation between Vanguard and Free is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Free Market Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Free Market Equity and Vanguard Energy 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 Energy Index are associated (or correlated) with Free Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Free Market Equity has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Free Market go up and down completely randomly.

Pair Corralation between Vanguard Energy and Free Market

Assuming the 90 days horizon Vanguard Energy Index is expected to generate 1.22 times more return on investment than Free Market. However, Vanguard Energy is 1.22 times more volatile than Free Market Equity. It trades about 0.13 of its potential returns per unit of risk. Free Market Equity is currently generating about -0.09 per unit of risk. If you would invest  5,878  in Vanguard Energy Index on December 20, 2024 and sell it today you would earn a total of  564.00  from holding Vanguard Energy Index or generate 9.6% return on investment over 90 days.

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

Vanguard Energy Index  vs.  Free Market Equity

Vanguard Energy Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Free Market Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard Energy and Free Market

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

The idea behind Vanguard Energy Index and Free Market Equity 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.