Correlation Between Vanguard Materials and Energy Basic

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

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

Diversification Opportunities for Vanguard Materials and Energy Basic

0.61

Correlation Coefficient

Vanguard Materials  Energy Basic

Poor diversification

The 3 months correlation between Vanguard and Energy is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials and Vanguard Materials 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 Materials Index are associated (or correlated) with Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Energy Basic go up and down completely randomly.

Pair Corralation between Vanguard Materials and Energy Basic

Assuming the 90 days horizon Vanguard Materials is expected to generate 12.99 times less return on investment than Energy Basic. In addition to that, Vanguard Materials is 1.1 times more volatile than Energy Basic Materials. It trades about 0.01 of its total potential returns per unit of risk. Energy Basic Materials is currently generating about 0.1 per unit of volatility. If you would invest  1,144  in Energy Basic Materials on December 30, 2024 and sell it today you would earn a total of  67.00  from holding Energy Basic Materials or generate 5.86% return on investment over 90 days.

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

Vanguard Materials Index  vs.  Energy Basic Materials

Vanguard Materials Index

Risk-Adjusted Performance

Very Weak

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

Energy Basic Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Energy Basic 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 Materials and Energy Basic

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

The idea behind Vanguard Materials Index and Energy Basic Materials 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.