Correlation Between Vanguard Financials and Ultralatin America

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

Diversification Opportunities for Vanguard Financials and Ultralatin America

0.14

Correlation Coefficient

Vanguard Financials  Ultralatin America

Average diversification

The 3 months correlation between Vanguard and Ultralatin is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Ultralatin America Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultralatin America 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 Ultralatin America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultralatin America has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Ultralatin America go up and down completely randomly.

Pair Corralation between Vanguard Financials and Ultralatin America

Assuming the 90 days horizon Vanguard Financials is expected to generate 26.8 times less return on investment than Ultralatin America. But when comparing it to its historical volatility, Vanguard Financials Index is 2.1 times less risky than Ultralatin America. It trades about 0.01 of its potential returns per unit of risk. Ultralatin America Profund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,103  in Ultralatin America Profund on December 23, 2024 and sell it today you would earn a total of  286.00  from holding Ultralatin America Profund or generate 25.93% 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.  Ultralatin America Profund

Vanguard Financials Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Ultralatin America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultralatin America Profund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultralatin America showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and Ultralatin America

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

The idea behind Vanguard Financials Index and Ultralatin America 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.