Correlation Between Vanguard Energy and Vanguard Wellington

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

Diversification Opportunities for Vanguard Energy and Vanguard Wellington

0.76

Correlation Coefficient

Vanguard Energy  Vanguard Wellington

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and Vanguard Wellington Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellington 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 Wellington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellington has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Vanguard Wellington go up and down completely randomly.

Pair Corralation between Vanguard Energy and Vanguard Wellington

Assuming the 90 days horizon Vanguard Energy is expected to generate 1.39 times less return on investment than Vanguard Wellington. In addition to that, Vanguard Energy is 1.21 times more volatile than Vanguard Wellington Fund. It trades about 0.22 of its total potential returns per unit of risk. Vanguard Wellington Fund is currently generating about 0.37 per unit of volatility. If you would invest  4,580  in Vanguard Wellington Fund on September 4, 2024 and sell it today you would earn a total of  180.00  from holding Vanguard Wellington Fund or generate 3.93% return on investment over 90 days.

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

Vanguard Energy Fund  vs.  Vanguard Wellington Fund

Vanguard Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 6 (%) 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 Wellington

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Wellington Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Vanguard Wellington 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 Wellington

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

The idea behind Vanguard Energy Fund and Vanguard Wellington 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.