Correlation Between Vanguard Energy and World Energy

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

Diversification Opportunities for Vanguard Energy and World Energy

0.2

Correlation Coefficient

Vanguard Energy  World Energy

Modest diversification

The 3 months correlation between Vanguard and World is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy 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 World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and World Energy go up and down completely randomly.

Pair Corralation between Vanguard Energy and World Energy

Assuming the 90 days horizon Vanguard Energy Fund is expected to under-perform the World Energy. In addition to that, Vanguard Energy is 2.36 times more volatile than World Energy Fund. It trades about -0.26 of its total potential returns per unit of risk. World Energy Fund is currently generating about 0.09 per unit of volatility. If you would invest  1,485  in World Energy Fund on October 9, 2024 and sell it today you would earn a total of  31.00  from holding World Energy Fund or generate 2.09% return on investment over 90 days.

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

Vanguard Energy Fund  vs.  World Energy Fund

Vanguard Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Energy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

World Energy

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Energy and World Energy

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

The idea behind Vanguard Energy Fund and World Energy Fund 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.