Correlation Between Vanguard Financials and Highland Longshort

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

Diversification Opportunities for Vanguard Financials and Highland Longshort

0.72

Correlation Coefficient

Vanguard Financials  Highland Longshort

Poor diversification

The 3 months correlation between Vanguard and Highland is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Highland Longshort Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Longshort 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 Highland Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Longshort has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Highland Longshort go up and down completely randomly.

Pair Corralation between Vanguard Financials and Highland Longshort

Assuming the 90 days horizon Vanguard Financials Index is expected to under-perform the Highland Longshort. In addition to that, Vanguard Financials is 5.88 times more volatile than Highland Longshort Healthcare. It trades about -0.21 of its total potential returns per unit of risk. Highland Longshort Healthcare is currently generating about -0.38 per unit of volatility. If you would invest  1,664  in Highland Longshort Healthcare on September 26, 2024 and sell it today you would lose (24.00) from holding Highland Longshort Healthcare or give up 1.44% of portfolio value over 90 days.

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

Vanguard Financials Index  vs.  Highland Longshort Healthcare

Vanguard Financials Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Highland Longshort

Risk-Adjusted Performance

3 of 100

Insignificant

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

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

The idea behind Vanguard Financials Index and Highland Longshort Healthcare 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 Transaction History module to view history of all your transactions and understand their impact on performance.