Correlation Between Vanguard Multifactor and LeaderSharesTM AlphaFactor

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

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

Diversification Opportunities for Vanguard Multifactor and LeaderSharesTM AlphaFactor

0.98

Correlation Coefficient

Vanguard Multifactor  LeaderSharesTM AlphaFactor

Almost no diversification

The 3 months correlation between Vanguard and LeaderSharesTM is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and LeaderSharesTM AlphaFactor Cor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LeaderSharesTM AlphaFactor and Vanguard Multifactor 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 Multifactor are associated (or correlated) with LeaderSharesTM AlphaFactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LeaderSharesTM AlphaFactor has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and LeaderSharesTM AlphaFactor go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and LeaderSharesTM AlphaFactor

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 0.95 times more return on investment than LeaderSharesTM AlphaFactor. However, Vanguard Multifactor is 1.05 times less risky than LeaderSharesTM AlphaFactor. It trades about -0.07 of its potential returns per unit of risk. LeaderSharesTM AlphaFactor Core is currently generating about -0.12 per unit of risk. If you would invest  13,946  in Vanguard Multifactor on September 12, 2024 and sell it today you would lose (146.00) from holding Vanguard Multifactor or give up 1.05% of portfolio value over 90 days.

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

Vanguard Multifactor  vs.  LeaderSharesTM AlphaFactor Cor

Vanguard Multifactor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Vanguard Multifactor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LeaderSharesTM AlphaFactor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LeaderSharesTM AlphaFactor Core are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, LeaderSharesTM AlphaFactor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Multifactor and LeaderSharesTM AlphaFactor

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

The idea behind Vanguard Multifactor and LeaderSharesTM AlphaFactor Core 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.