Correlation Between Vanguard and Energy Leaders

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

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

Diversification Opportunities for Vanguard and Energy Leaders

0.15

Correlation Coefficient

Vanguard  Energy Leaders

Average diversification

The 3 months correlation between Vanguard and Energy is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Energy Leaders Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Leaders Plus and Vanguard 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 SP 500 are associated (or correlated) with Energy Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Leaders Plus has no effect on the direction of Vanguard i.e., Vanguard and Energy Leaders go up and down completely randomly.

Pair Corralation between Vanguard and Energy Leaders

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the Energy Leaders. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP 500 is 1.12 times less risky than Energy Leaders. The etf trades about -0.09 of its potential returns per unit of risk. The Energy Leaders Plus is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  293.00  in Energy Leaders Plus on December 21, 2024 and sell it today you would earn a total of  27.00  from holding Energy Leaders Plus or generate 9.22% return on investment over 90 days.

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

Vanguard SP 500  vs.  Energy Leaders Plus

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Energy Leaders Plus

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Leaders Plus are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Energy Leaders may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard and Energy Leaders

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

The idea behind Vanguard SP 500 and Energy Leaders Plus 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.