Correlation Between Vanguard Explorer and Vanguard Diversified

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

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

Diversification Opportunities for Vanguard Explorer and Vanguard Diversified

0.92

Correlation Coefficient

Vanguard Explorer  Vanguard Diversified

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Explorer Value and Vanguard Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Diversified and Vanguard Explorer 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 Explorer Value are associated (or correlated) with Vanguard Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Diversified has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Vanguard Diversified go up and down completely randomly.

Pair Corralation between Vanguard Explorer and Vanguard Diversified

Assuming the 90 days horizon Vanguard Explorer Value is expected to generate 1.9 times more return on investment than Vanguard Diversified. However, Vanguard Explorer is 1.9 times more volatile than Vanguard Diversified Equity. It trades about 0.29 of its potential returns per unit of risk. Vanguard Diversified Equity is currently generating about 0.38 per unit of risk. If you would invest  4,864  in Vanguard Explorer Value on September 4, 2024 and sell it today you would earn a total of  447.00  from holding Vanguard Explorer Value or generate 9.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Vanguard Explorer Value  vs.  Vanguard Diversified Equity

Vanguard Explorer Value

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Explorer Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Explorer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Diversified

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Diversified Equity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Explorer and Vanguard Diversified

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

The idea behind Vanguard Explorer Value and Vanguard Diversified 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.