Correlation Between Vanguard Explorer and Rational Strategic

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

By analyzing existing cross correlation between Vanguard Explorer Fund and Rational Strategic Allocation, you can compare the effects of market volatilities on Vanguard Explorer and Rational Strategic 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 Rational Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Explorer and Rational Strategic.

Diversification Opportunities for Vanguard Explorer and Rational Strategic

0.83

Correlation Coefficient

Vanguard Explorer  Rational Strategic

Very poor diversification

The 3 months correlation between Vanguard and Rational is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Explorer Fund and Rational Strategic Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Strategic 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 Fund are associated (or correlated) with Rational Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Strategic has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Rational Strategic go up and down completely randomly.

Pair Corralation between Vanguard Explorer and Rational Strategic

Assuming the 90 days horizon Vanguard Explorer Fund is expected to generate 0.74 times more return on investment than Rational Strategic. However, Vanguard Explorer Fund is 1.34 times less risky than Rational Strategic. It trades about 0.18 of its potential returns per unit of risk. Rational Strategic Allocation is currently generating about 0.09 per unit of risk. If you would invest  11,836  in Vanguard Explorer Fund on September 3, 2024 and sell it today you would earn a total of  1,357  from holding Vanguard Explorer Fund or generate 11.47% return on investment over 90 days.

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

Vanguard Explorer Fund  vs.  Rational Strategic Allocation

Vanguard Explorer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Explorer Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Explorer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rational Strategic

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Strategic Allocation are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Rational Strategic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Explorer and Rational Strategic

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

The idea behind Vanguard Explorer Fund and Rational Strategic Allocation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.