Correlation Between Vanguard World and Schlumberger

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

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

Diversification Opportunities for Vanguard World and Schlumberger

0.63

Correlation Coefficient

Vanguard World  Schlumberger

Poor diversification

The 3 months correlation between Vanguard and Schlumberger is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Vanguard World i.e., Vanguard World and Schlumberger go up and down completely randomly.

Pair Corralation between Vanguard World and Schlumberger

Assuming the 90 days trading horizon Vanguard World is expected to generate 0.48 times more return on investment than Schlumberger. However, Vanguard World is 2.09 times less risky than Schlumberger. It trades about 0.04 of its potential returns per unit of risk. Schlumberger Limited is currently generating about -0.02 per unit of risk. If you would invest  442,249  in Vanguard World on October 5, 2024 and sell it today you would earn a total of  83,752  from holding Vanguard World or generate 18.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Vanguard World  vs.  Schlumberger Limited

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Vanguard World and Schlumberger

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

The idea behind Vanguard World and Schlumberger Limited 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.