Correlation Between Vanguard Specialized and Select Sector

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

By analyzing existing cross correlation between Vanguard Specialized Funds and The Select Sector, you can compare the effects of market volatilities on Vanguard Specialized and Select Sector 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 Specialized with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Specialized and Select Sector.

Diversification Opportunities for Vanguard Specialized and Select Sector

0.63

Correlation Coefficient

Vanguard Specialized  Select Sector

Poor diversification

The 3 months correlation between Vanguard and Select is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Specialized Funds and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and Vanguard Specialized 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 Specialized Funds are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of Vanguard Specialized i.e., Vanguard Specialized and Select Sector go up and down completely randomly.

Pair Corralation between Vanguard Specialized and Select Sector

Assuming the 90 days trading horizon Vanguard Specialized Funds is expected to under-perform the Select Sector. In addition to that, Vanguard Specialized is 1.28 times more volatile than The Select Sector. It trades about -0.4 of its total potential returns per unit of risk. The Select Sector is currently generating about -0.41 per unit of volatility. If you would invest  290,173  in The Select Sector on September 26, 2024 and sell it today you would lose (22,173) from holding The Select Sector or give up 7.64% of portfolio value over 90 days.

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

Vanguard Specialized Funds  vs.  The Select Sector

Vanguard Specialized

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Specialized Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard Specialized is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Select Sector

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Select Sector 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 Specialized and Select Sector

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

The idea behind Vanguard Specialized Funds and The Select Sector 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 CEOs Directory module to screen CEOs from public companies around the world.