Correlation Between Vanguard World and US Bancorp

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

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

Diversification Opportunities for Vanguard World and US Bancorp

0.2

Correlation Coefficient

Vanguard World  US Bancorp

Modest diversification

The 3 months correlation between Vanguard and USB is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard World and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Vanguard World i.e., Vanguard World and US Bancorp go up and down completely randomly.

Pair Corralation between Vanguard World and US Bancorp

Assuming the 90 days trading horizon Vanguard World is expected to generate 0.75 times more return on investment than US Bancorp. However, Vanguard World is 1.33 times less risky than US Bancorp. It trades about 0.08 of its potential returns per unit of risk. US Bancorp is currently generating about -0.17 per unit of risk. If you would invest  519,080  in Vanguard World on December 27, 2024 and sell it today you would earn a total of  20,920  from holding Vanguard World or generate 4.03% return on investment over 90 days.

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

Vanguard World  vs.  US Bancorp

Vanguard World

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard World are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers 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 US Bancorp

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

The idea behind Vanguard World and US Bancorp 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 Global Correlations module to find global opportunities by holding instruments from different markets.