Correlation Between Vanguard Global and Vanguard Balanced

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

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

Diversification Opportunities for Vanguard Global and Vanguard Balanced

0.84

Correlation Coefficient

Vanguard Global  Vanguard Balanced

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Global Momentum and Vanguard Balanced Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Balanced and Vanguard Global 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 Global Momentum are associated (or correlated) with Vanguard Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Balanced has no effect on the direction of Vanguard Global i.e., Vanguard Global and Vanguard Balanced go up and down completely randomly.

Pair Corralation between Vanguard Global and Vanguard Balanced

Assuming the 90 days trading horizon Vanguard Global Momentum is expected to under-perform the Vanguard Balanced. In addition to that, Vanguard Global is 2.23 times more volatile than Vanguard Balanced Portfolio. It trades about -0.03 of its total potential returns per unit of risk. Vanguard Balanced Portfolio is currently generating about -0.01 per unit of volatility. If you would invest  3,371  in Vanguard Balanced Portfolio on December 23, 2024 and sell it today you would lose (18.00) from holding Vanguard Balanced Portfolio or give up 0.53% of portfolio value over 90 days.

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

Vanguard Global Momentum  vs.  Vanguard Balanced Portfolio

Vanguard Global Momentum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Global Momentum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Balanced Portfolio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Global and Vanguard Balanced

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

The idea behind Vanguard Global Momentum and Vanguard Balanced Portfolio 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.