Correlation Between Vanguard Financials and Growth Portfolio

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

Diversification Opportunities for Vanguard Financials and Growth Portfolio

0.83

Correlation Coefficient

Vanguard Financials  Growth Portfolio

Very poor diversification

The 3 months correlation between Vanguard and Growth is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Growth Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Portfolio Class 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 Growth Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Portfolio Class has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Growth Portfolio go up and down completely randomly.

Pair Corralation between Vanguard Financials and Growth Portfolio

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 0.51 times more return on investment than Growth Portfolio. However, Vanguard Financials Index is 1.96 times less risky than Growth Portfolio. It trades about -0.15 of its potential returns per unit of risk. Growth Portfolio Class is currently generating about -0.08 per unit of risk. If you would invest  6,134  in Vanguard Financials Index on October 9, 2024 and sell it today you would lose (212.00) from holding Vanguard Financials Index or give up 3.46% of portfolio value over 90 days.

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

Vanguard Financials Index  vs.  Growth Portfolio Class

Vanguard Financials Index

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 6 (%) 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 February 2025.

Growth Portfolio Class

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Portfolio Class are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Growth Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and Growth Portfolio

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

The idea behind Vanguard Financials Index and Growth Portfolio Class 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.