Correlation Between Vanguard Institutional and Vanguard Explorer

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

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

Diversification Opportunities for Vanguard Institutional and Vanguard Explorer

0.94

Correlation Coefficient

Vanguard Institutional  Vanguard Explorer

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Institutional Index and Vanguard Explorer Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer Value and Vanguard Institutional 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 Institutional Index are associated (or correlated) with Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer Value has no effect on the direction of Vanguard Institutional i.e., Vanguard Institutional and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Vanguard Institutional and Vanguard Explorer

Assuming the 90 days horizon Vanguard Institutional is expected to generate 1.37 times less return on investment than Vanguard Explorer. But when comparing it to its historical volatility, Vanguard Institutional Index is 1.74 times less risky than Vanguard Explorer. It trades about 0.21 of its potential returns per unit of risk. Vanguard Explorer Value is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,631  in Vanguard Explorer Value on September 12, 2024 and sell it today you would earn a total of  564.00  from holding Vanguard Explorer Value or generate 12.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Institutional Index  vs.  Vanguard Explorer Value

Vanguard Institutional

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Institutional Index are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Institutional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Explorer Value

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Explorer Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Explorer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Institutional and Vanguard Explorer

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

The idea behind Vanguard Institutional Index and Vanguard Explorer Value 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.