Correlation Between Vanguard World and Vanguard Specialized

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

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

Diversification Opportunities for Vanguard World and Vanguard Specialized

0.06

Correlation Coefficient

Vanguard World  Vanguard Specialized

Significant diversification

The 3 months correlation between Vanguard and Vanguard is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and Vanguard Specialized Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Specialized and Vanguard World 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 World are associated (or correlated) with Vanguard Specialized. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Specialized has no effect on the direction of Vanguard World i.e., Vanguard World and Vanguard Specialized go up and down completely randomly.

Pair Corralation between Vanguard World and Vanguard Specialized

Assuming the 90 days trading horizon Vanguard World is expected to under-perform the Vanguard Specialized. In addition to that, Vanguard World is 1.26 times more volatile than Vanguard Specialized Funds. It trades about -0.24 of its total potential returns per unit of risk. Vanguard Specialized Funds is currently generating about -0.15 per unit of volatility. If you would invest  190,538  in Vanguard Specialized Funds on December 30, 2024 and sell it today you would lose (8,330) from holding Vanguard Specialized Funds or give up 4.37% of portfolio value over 90 days.

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

Vanguard World  vs.  Vanguard Specialized Funds

Vanguard World

Risk-Adjusted Performance

Very Weak

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

Vanguard Specialized

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard World and Vanguard Specialized

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

The idea behind Vanguard World and Vanguard Specialized Funds 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..