Correlation Between Vanguard and Vanguard All

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

Diversification Opportunities for Vanguard and Vanguard All

0.85

Correlation Coefficient

Vanguard  Vanguard All

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Vanguard All Equity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard All Equity 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 Vanguard All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard All Equity has no effect on the direction of Vanguard i.e., Vanguard and Vanguard All go up and down completely randomly.

Pair Corralation between Vanguard and Vanguard All

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the Vanguard All. In addition to that, Vanguard is 1.19 times more volatile than Vanguard All Equity ETF. It trades about -0.01 of its total potential returns per unit of risk. Vanguard All Equity ETF is currently generating about 0.0 per unit of volatility. If you would invest  4,631  in Vanguard All Equity ETF on December 4, 2024 and sell it today you would lose (8.00) from holding Vanguard All Equity ETF or give up 0.17% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  Vanguard All Equity ETF

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.

Vanguard All Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard and Vanguard All

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

The idea behind Vanguard SP 500 and Vanguard All Equity ETF 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.