Correlation Between Vanguard Institutional and Eafe Choice

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

By analyzing existing cross correlation between Vanguard Institutional Short Term and The Eafe Choice, you can compare the effects of market volatilities on Vanguard Institutional and Eafe Choice 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 Eafe Choice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Institutional and Eafe Choice.

Diversification Opportunities for Vanguard Institutional and Eafe Choice

0.46

Correlation Coefficient

Vanguard Institutional  Eafe Choice

Very weak diversification

The 3 months correlation between VANGUARD and Eafe is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Institutional Short T and The Eafe Choice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Choice 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 Short Term are associated (or correlated) with Eafe Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Choice has no effect on the direction of Vanguard Institutional i.e., Vanguard Institutional and Eafe Choice go up and down completely randomly.

Pair Corralation between Vanguard Institutional and Eafe Choice

Assuming the 90 days horizon Vanguard Institutional Short Term is expected to generate 0.11 times more return on investment than Eafe Choice. However, Vanguard Institutional Short Term is 9.07 times less risky than Eafe Choice. It trades about 0.01 of its potential returns per unit of risk. The Eafe Choice is currently generating about 0.0 per unit of risk. If you would invest  1,319  in Vanguard Institutional Short Term on September 5, 2024 and sell it today you would earn a total of  1.00  from holding Vanguard Institutional Short Term or generate 0.08% return on investment over 90 days.

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

Vanguard Institutional Short T  vs.  The Eafe Choice

Vanguard Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Institutional Short Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Institutional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eafe Choice

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Eafe Choice has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Eafe Choice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Institutional and Eafe Choice

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

The idea behind Vanguard Institutional Short Term and The Eafe Choice 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.