Correlation Between Vanguard Energy and Ivy Small

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

Diversification Opportunities for Vanguard Energy and Ivy Small

0.84

Correlation Coefficient

Vanguard Energy  Ivy Small

Very poor diversification

The 3 months correlation between Vanguard and Ivy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Ivy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Small Cap 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 Ivy Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Small Cap has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Ivy Small go up and down completely randomly.

Pair Corralation between Vanguard Energy and Ivy Small

Assuming the 90 days horizon Vanguard Energy Index is expected to generate 0.94 times more return on investment than Ivy Small. However, Vanguard Energy Index is 1.06 times less risky than Ivy Small. It trades about 0.02 of its potential returns per unit of risk. Ivy Small Cap is currently generating about 0.01 per unit of risk. If you would invest  5,773  in Vanguard Energy Index on October 9, 2024 and sell it today you would earn a total of  414.00  from holding Vanguard Energy Index or generate 7.17% return on investment over 90 days.

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

Vanguard Energy Index  vs.  Ivy Small Cap

Vanguard Energy Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ivy Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ivy Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Energy and Ivy Small

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

The idea behind Vanguard Energy Index and Ivy Small Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.