Correlation Between Vanguard Market and Vanguard Consumer

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

By analyzing existing cross correlation between Vanguard Market Neutral and Vanguard Sumer Staples, you can compare the effects of market volatilities on Vanguard Market and Vanguard Consumer 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 Market with a short position of Vanguard Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Market and Vanguard Consumer.

Diversification Opportunities for Vanguard Market and Vanguard Consumer

-0.21

Correlation Coefficient

Vanguard Market  Vanguard Consumer

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Market Neutral and Vanguard Sumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sumer Staples and Vanguard Market 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 Market Neutral are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sumer Staples has no effect on the direction of Vanguard Market i.e., Vanguard Market and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Vanguard Market and Vanguard Consumer

Assuming the 90 days horizon Vanguard Market Neutral is expected to under-perform the Vanguard Consumer. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Market Neutral is 1.9 times less risky than Vanguard Consumer. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Vanguard Sumer Staples is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,405  in Vanguard Sumer Staples on December 30, 2024 and sell it today you would earn a total of  224.00  from holding Vanguard Sumer Staples or generate 2.15% return on investment over 90 days.

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

Vanguard Market Neutral  vs.  Vanguard Sumer Staples

Vanguard Market Neutral

Risk-Adjusted Performance

Very Weak

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

Vanguard Sumer Staples

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Sumer Staples are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Consumer 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 Market and Vanguard Consumer

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

The idea behind Vanguard Market Neutral and Vanguard Sumer Staples 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.