Correlation Between Vanguard Total and Select Equity

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

By analyzing existing cross correlation between Vanguard Total Stock and Select Equity Fund, you can compare the effects of market volatilities on Vanguard Total and Select Equity 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 Total with a short position of Select Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Select Equity.

Diversification Opportunities for Vanguard Total and Select Equity

0.16

Correlation Coefficient

Vanguard Total  Select Equity

Average diversification

The 3 months correlation between Vanguard and Select is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Select Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Equity and Vanguard Total 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 Total Stock are associated (or correlated) with Select Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Equity has no effect on the direction of Vanguard Total i.e., Vanguard Total and Select Equity go up and down completely randomly.

Pair Corralation between Vanguard Total and Select Equity

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 0.45 times more return on investment than Select Equity. However, Vanguard Total Stock is 2.24 times less risky than Select Equity. It trades about 0.12 of its potential returns per unit of risk. Select Equity Fund is currently generating about 0.0 per unit of risk. If you would invest  11,387  in Vanguard Total Stock on October 7, 2024 and sell it today you would earn a total of  2,882  from holding Vanguard Total Stock or generate 25.31% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Select Equity Fund

Vanguard Total Stock

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Select Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Select Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Total and Select Equity

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

The idea behind Vanguard Total Stock and Select Equity Fund 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.