Correlation Between Vanguard Materials and Vanguard Mega

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

Diversification Opportunities for Vanguard Materials and Vanguard Mega

-0.57

Correlation Coefficient

Vanguard Materials  Vanguard Mega

Excellent diversification

The 3 months correlation between Vanguard and Vanguard is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap 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 Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Vanguard Mega go up and down completely randomly.

Pair Corralation between Vanguard Materials and Vanguard Mega

Assuming the 90 days horizon Vanguard Materials Index is expected to under-perform the Vanguard Mega. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Materials Index is 1.26 times less risky than Vanguard Mega. The mutual fund trades about -0.55 of its potential returns per unit of risk. The Vanguard Mega Cap is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  70,052  in Vanguard Mega Cap on October 7, 2024 and sell it today you would lose (892.00) from holding Vanguard Mega Cap or give up 1.27% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Vanguard Mega Cap

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

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 Mega Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Mega may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Materials and Vanguard Mega

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

The idea behind Vanguard Materials Index and Vanguard Mega Cap 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.