Correlation Between Vanguard Financials and Touchstone Premium

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

Diversification Opportunities for Vanguard Financials and Touchstone Premium

0.04

Correlation Coefficient

Vanguard Financials  Touchstone Premium

Significant diversification

The 3 months correlation between Vanguard and Touchstone is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Touchstone Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Premium Yield 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 Touchstone Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Premium Yield has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Touchstone Premium go up and down completely randomly.

Pair Corralation between Vanguard Financials and Touchstone Premium

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 1.04 times more return on investment than Touchstone Premium. However, Vanguard Financials is 1.04 times more volatile than Touchstone Premium Yield. It trades about 0.08 of its potential returns per unit of risk. Touchstone Premium Yield is currently generating about -0.14 per unit of risk. If you would invest  5,704  in Vanguard Financials Index on October 6, 2024 and sell it today you would earn a total of  257.00  from holding Vanguard Financials Index or generate 4.51% 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.  Touchstone Premium Yield

Vanguard Financials Index

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 8 (%) 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.

Touchstone Premium Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Premium Yield has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Financials and Touchstone Premium

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

The idea behind Vanguard Financials Index and Touchstone Premium Yield 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.