Correlation Between Vanguard 500 and Lkcm Equity

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Lkcm Equity 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 Lkcm Equity 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 Lkcm Equity Fund, you can compare the effects of market volatilities on Vanguard 500 and Lkcm Equity 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 Lkcm Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Lkcm Equity.

Diversification Opportunities for Vanguard 500 and Lkcm Equity

0.77

Correlation Coefficient

Vanguard 500  Lkcm Equity

Poor diversification

The 3 months correlation between Vanguard and Lkcm is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Lkcm Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lkcm Equity Fund 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 Lkcm Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lkcm Equity Fund has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Lkcm Equity go up and down completely randomly.

Pair Corralation between Vanguard 500 and Lkcm Equity

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.08 times more return on investment than Lkcm Equity. However, Vanguard 500 is 1.08 times more volatile than Lkcm Equity Fund. It trades about -0.06 of its potential returns per unit of risk. Lkcm Equity Fund is currently generating about -0.08 per unit of risk. If you would invest  54,504  in Vanguard 500 Index on December 29, 2024 and sell it today you would lose (1,987) from holding Vanguard 500 Index or give up 3.65% of portfolio value over 90 days.

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

Vanguard 500 Index  vs.  Lkcm Equity Fund

Vanguard 500 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard 500 Index has generated negative risk-adjusted returns adding no value to fund investors. 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.

Lkcm Equity Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lkcm Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lkcm Equity 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 500 and Lkcm Equity

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

The idea behind Vanguard 500 Index and Lkcm Equity Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.