Correlation Between Vanguard Health and Vanguard Growth

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

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

Diversification Opportunities for Vanguard Health and Vanguard Growth

0.01

Correlation Coefficient

Vanguard Health  Vanguard Growth

Significant diversification

The 3 months correlation between Vanguard and Vanguard is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index and Vanguard Health 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 Health Care are associated (or correlated) with Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of Vanguard Health i.e., Vanguard Health and Vanguard Growth go up and down completely randomly.

Pair Corralation between Vanguard Health and Vanguard Growth

Considering the 90-day investment horizon Vanguard Health is expected to generate 2.63 times less return on investment than Vanguard Growth. But when comparing it to its historical volatility, Vanguard Health Care is 1.49 times less risky than Vanguard Growth. It trades about 0.05 of its potential returns per unit of risk. Vanguard Growth Index is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  28,642  in Vanguard Growth Index on December 2, 2024 and sell it today you would earn a total of  11,931  from holding Vanguard Growth Index or generate 41.66% return on investment over 90 days.

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

Vanguard Health Care  vs.  Vanguard Growth Index

Vanguard Health Care

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Health Care are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Growth Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Growth Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Health and Vanguard Growth

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

The idea behind Vanguard Health Care and Vanguard Growth Index 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.