Correlation Between Vanguard Energy and Vanguard Materials

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

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

Diversification Opportunities for Vanguard Energy and Vanguard Materials

-0.03

Correlation Coefficient

Vanguard Energy  Vanguard Materials

Good diversification

The 3 months correlation between Vanguard and Vanguard is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Vanguard Energy 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 Energy Fund are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Vanguard Materials go up and down completely randomly.

Pair Corralation between Vanguard Energy and Vanguard Materials

Assuming the 90 days horizon Vanguard Energy Fund is expected to generate 0.78 times more return on investment than Vanguard Materials. However, Vanguard Energy Fund is 1.28 times less risky than Vanguard Materials. It trades about 0.19 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.01 per unit of risk. If you would invest  8,038  in Vanguard Energy Fund on December 30, 2024 and sell it today you would earn a total of  793.00  from holding Vanguard Energy Fund or generate 9.87% return on investment over 90 days.

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

Vanguard Energy Fund  vs.  Vanguard Materials Index

Vanguard Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Vanguard Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Materials Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Materials 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 Energy and Vanguard Materials

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

The idea behind Vanguard Energy Fund and Vanguard Materials Index 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.