Correlation Between Vanguard Materials and Vanguard Explorer

Can any of the company-specific risk be diversified away by investing in both Vanguard Materials 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 Materials 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 Materials Index and Vanguard Explorer Fund, you can compare the effects of market volatilities on Vanguard Materials 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 Materials with a short position of Vanguard Explorer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Vanguard Explorer.

Diversification Opportunities for Vanguard Materials and Vanguard Explorer

0.71

Correlation Coefficient

Vanguard Materials  Vanguard Explorer

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer 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 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 has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Vanguard Materials and Vanguard Explorer

Assuming the 90 days horizon Vanguard Materials Index is expected to generate 0.73 times more return on investment than Vanguard Explorer. However, Vanguard Materials Index is 1.37 times less risky than Vanguard Explorer. It trades about -0.14 of its potential returns per unit of risk. Vanguard Explorer Fund is currently generating about -0.23 per unit of risk. If you would invest  10,514  in Vanguard Materials Index on December 5, 2024 and sell it today you would lose (864.00) from holding Vanguard Materials Index or give up 8.22% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Vanguard Explorer Fund

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Vanguard Explorer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Explorer 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Materials and Vanguard Explorer

The main advantage of trading using opposite Vanguard Materials and Vanguard Explorer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials 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 Materials Index and Vanguard Explorer 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.