Correlation Between Vanguard Financials and Financials Ultrasector

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

Diversification Opportunities for Vanguard Financials and Financials Ultrasector

0.99

Correlation Coefficient

Vanguard Financials  Financials Ultrasector

No risk reduction

The 3 months correlation between Vanguard and Financials is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector 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 Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Vanguard Financials and Financials Ultrasector

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 0.68 times more return on investment than Financials Ultrasector. However, Vanguard Financials Index is 1.47 times less risky than Financials Ultrasector. It trades about 0.0 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about -0.01 per unit of risk. If you would invest  6,007  in Vanguard Financials Index on December 24, 2024 and sell it today you would lose (40.00) from holding Vanguard Financials Index or give up 0.67% of portfolio value over 90 days.

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

Vanguard Financials Index  vs.  Financials Ultrasector Profund

Vanguard Financials Index

Risk-Adjusted Performance

Very 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.

Financials Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financials Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Financials Ultrasector 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 Financials Ultrasector

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

The idea behind Vanguard Financials Index and Financials Ultrasector Profund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.