Correlation Between Vanguard 500 and Frost Kempner

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

Diversification Opportunities for Vanguard 500 and Frost Kempner

0.93

Correlation Coefficient

Vanguard 500  Frost Kempner

Almost no diversification

The 3 months correlation between Vanguard and Frost is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Frost Kempner Multi Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frost Kempner Multi 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 Frost Kempner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frost Kempner Multi has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Frost Kempner go up and down completely randomly.

Pair Corralation between Vanguard 500 and Frost Kempner

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.07 times more return on investment than Frost Kempner. However, Vanguard 500 is 1.07 times more volatile than Frost Kempner Multi Cap. It trades about 0.18 of its potential returns per unit of risk. Frost Kempner Multi Cap is currently generating about 0.1 per unit of risk. If you would invest  51,988  in Vanguard 500 Index on September 17, 2024 and sell it today you would earn a total of  3,996  from holding Vanguard 500 Index or generate 7.69% return on investment over 90 days.

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

Vanguard 500 Index  vs.  Frost Kempner Multi Cap

Vanguard 500 Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Frost Kempner Multi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frost Kempner Multi Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Frost Kempner 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 Frost Kempner

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

The idea behind Vanguard 500 Index and Frost Kempner Multi Cap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.