Correlation Between Vanguard Financials and Federated Global

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

Diversification Opportunities for Vanguard Financials and Federated Global

0.25

Correlation Coefficient

Vanguard Financials  Federated Global

Modest diversification

The 3 months correlation between Vanguard and Federated is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Federated Global Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Global Total 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 Federated Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Global Total has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Federated Global go up and down completely randomly.

Pair Corralation between Vanguard Financials and Federated Global

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 13.4 times more return on investment than Federated Global. However, Vanguard Financials is 13.4 times more volatile than Federated Global Total. It trades about 0.01 of its potential returns per unit of risk. Federated Global Total is currently generating about -0.16 per unit of risk. If you would invest  5,915  in Vanguard Financials Index on December 30, 2024 and sell it today you would earn a total of  4.00  from holding Vanguard Financials Index or generate 0.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	29.03%
Values	Daily Returns

Vanguard Financials Index  vs.  Federated Global Total

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.

Federated Global Total

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Vanguard Financials Index and Federated Global Total 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.