Correlation Between Vanguard Financials and Dunham Emerging

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

Diversification Opportunities for Vanguard Financials and Dunham Emerging

0.14

Correlation Coefficient

Vanguard Financials  Dunham Emerging

Average diversification

The 3 months correlation between Vanguard and Dunham is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Dunham Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Emerging Markets 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 Dunham Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Emerging Markets has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Dunham Emerging go up and down completely randomly.

Pair Corralation between Vanguard Financials and Dunham Emerging

Assuming the 90 days horizon Vanguard Financials Index is expected to under-perform the Dunham Emerging. In addition to that, Vanguard Financials is 1.06 times more volatile than Dunham Emerging Markets. It trades about 0.0 of its total potential returns per unit of risk. Dunham Emerging Markets is currently generating about 0.05 per unit of volatility. If you would invest  1,402  in Dunham Emerging Markets on December 24, 2024 and sell it today you would earn a total of  36.00  from holding Dunham Emerging Markets or generate 2.57% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Dunham Emerging Markets

Vanguard Financials Index

Risk-Adjusted Performance

Weak

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

Dunham Emerging Markets

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Emerging Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Dunham Emerging 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 Financials and Dunham Emerging

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

The idea behind Vanguard Financials Index and Dunham Emerging Markets 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.