Correlation Between Vanguard 500 and Cajxx

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Cajxx 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 500 and Cajxx into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard 500 Index and Cajxx, you can compare the effects of market volatilities on Vanguard 500 and Cajxx 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 500 with a short position of Cajxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Cajxx.

Diversification Opportunities for Vanguard 500 and Cajxx

-0.64

Correlation Coefficient

Vanguard 500  Cajxx

Excellent diversification

The 3 months correlation between Vanguard and Cajxx is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Cajxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cajxx and Vanguard 500 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 500 Index are associated (or correlated) with Cajxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cajxx has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Cajxx go up and down completely randomly.

Pair Corralation between Vanguard 500 and Cajxx

Assuming the 90 days horizon Vanguard 500 is expected to generate 123.04 times less return on investment than Cajxx. But when comparing it to its historical volatility, Vanguard 500 Index is 83.42 times less risky than Cajxx. It trades about 0.08 of its potential returns per unit of risk. Cajxx is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  492.00  in Cajxx on September 29, 2024 and sell it today you would lose (392.00) from holding Cajxx or give up 79.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

Vanguard 500 Index  vs.  Cajxx

Vanguard 500 Index

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cajxx

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cajxx are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Cajxx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard 500 and Cajxx

The main advantage of trading using opposite Vanguard 500 and Cajxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Cajxx 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 Cajxx will offset losses from the drop in Cajxx's long position.

The idea behind Vanguard 500 Index and Cajxx 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.