Correlation Between Vanguard World and Berkshire Hathaway

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

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

Diversification Opportunities for Vanguard World and Berkshire Hathaway

0.14

Correlation Coefficient

Vanguard World  Berkshire Hathaway

Average diversification

The 3 months correlation between Vanguard and Berkshire is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Vanguard World i.e., Vanguard World and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Vanguard World and Berkshire Hathaway

Assuming the 90 days trading horizon Vanguard World is expected to under-perform the Berkshire Hathaway. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard World is 1.41 times less risky than Berkshire Hathaway. The etf trades about -0.08 of its potential returns per unit of risk. The Berkshire Hathaway is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  872,900  in Berkshire Hathaway on September 15, 2024 and sell it today you would earn a total of  50,550  from holding Berkshire Hathaway or generate 5.79% return on investment over 90 days.

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

Vanguard World  vs.  Berkshire Hathaway

Vanguard World

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Vanguard World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Berkshire Hathaway

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard World and Berkshire Hathaway

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

The idea behind Vanguard World and Berkshire Hathaway 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.