Correlation Between Vanguard Mega and Vanguard Energy

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

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

Diversification Opportunities for Vanguard Mega and Vanguard Energy

0.85

Correlation Coefficient

Vanguard Mega  Vanguard Energy

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mega Cap and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy and Vanguard Mega 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 Mega Cap are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Vanguard Mega i.e., Vanguard Mega and Vanguard Energy go up and down completely randomly.

Pair Corralation between Vanguard Mega and Vanguard Energy

Assuming the 90 days horizon Vanguard Mega Cap is expected to generate 1.03 times more return on investment than Vanguard Energy. However, Vanguard Mega is 1.03 times more volatile than Vanguard Energy Fund. It trades about 0.15 of its potential returns per unit of risk. Vanguard Energy Fund is currently generating about 0.08 per unit of risk. If you would invest  24,663  in Vanguard Mega Cap on September 5, 2024 and sell it today you would earn a total of  1,501  from holding Vanguard Mega Cap or generate 6.09% return on investment over 90 days.

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

Vanguard Mega Cap  vs.  Vanguard Energy Fund

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 strong essential indicators, Vanguard Mega is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Vanguard Energy 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 Mega and Vanguard Energy

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

The idea behind Vanguard Mega Cap and Vanguard Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.