Correlation Between Vanguard Multifactor and Vanguard

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

By analyzing existing cross correlation between Vanguard Multifactor and Vanguard SP Small Cap, you can compare the effects of market volatilities on Vanguard Multifactor and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Multifactor and Vanguard.

Diversification Opportunities for Vanguard Multifactor and Vanguard

0.97

Correlation Coefficient

Vanguard Multifactor  Vanguard

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and Vanguard go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and Vanguard

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 0.78 times more return on investment than Vanguard. However, Vanguard Multifactor is 1.27 times less risky than Vanguard. It trades about 0.1 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.07 per unit of risk. If you would invest  10,302  in Vanguard Multifactor on September 12, 2024 and sell it today you would earn a total of  3,432  from holding Vanguard Multifactor or generate 33.31% return on investment over 90 days.

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

Vanguard Multifactor  vs.  Vanguard SP Small Cap

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.

Vanguard SP Small

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Multifactor and Vanguard

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

The idea behind Vanguard Multifactor and Vanguard SP Small 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.