Correlation Between Vanguard Energy and Vanguard Capital

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

Diversification Opportunities for Vanguard Energy and Vanguard Capital

0.56

Correlation Coefficient

Vanguard Energy  Vanguard Capital

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and Vanguard Capital Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Capital Opp 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 Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Capital Opp has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Vanguard Capital go up and down completely randomly.

Pair Corralation between Vanguard Energy and Vanguard Capital

Assuming the 90 days horizon Vanguard Energy Fund is expected to under-perform the Vanguard Capital. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Energy Fund is 1.09 times less risky than Vanguard Capital. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Vanguard Capital Opportunity is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  9,237  in Vanguard Capital Opportunity on September 12, 2024 and sell it today you would lose (85.00) from holding Vanguard Capital Opportunity or give up 0.92% of portfolio value over 90 days.

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

Vanguard Energy Fund  vs.  Vanguard Capital Opportunity

Vanguard Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Capital Opp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Capital Opportunity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Energy and Vanguard Capital

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

The idea behind Vanguard Energy Fund and Vanguard Capital Opportunity 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.