Correlation Between Vanguard Financials and Alger Funds

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

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

Diversification Opportunities for Vanguard Financials and Alger Funds

0.96

Correlation Coefficient

Vanguard Financials  Alger Funds

Almost no diversification

The 3 months correlation between Vanguard and Alger is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Alger Funds Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Funds Mid and Vanguard Financials 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 Financials Index are associated (or correlated) with Alger Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Funds Mid has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Alger Funds go up and down completely randomly.

Pair Corralation between Vanguard Financials and Alger Funds

Assuming the 90 days horizon Vanguard Financials is expected to generate 1.46 times less return on investment than Alger Funds. In addition to that, Vanguard Financials is 1.02 times more volatile than Alger Funds Mid. It trades about 0.19 of its total potential returns per unit of risk. Alger Funds Mid is currently generating about 0.28 per unit of volatility. If you would invest  1,549  in Alger Funds Mid on September 12, 2024 and sell it today you would earn a total of  345.00  from holding Alger Funds Mid or generate 22.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Financials Index  vs.  Alger Funds Mid

Vanguard Financials Index

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Alger Funds Mid

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alger Funds Mid are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Alger Funds showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and Alger Funds

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

The idea behind Vanguard Financials Index and Alger Funds Mid 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.