Correlation Between Vanguard and Avantis Equity

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

By analyzing existing cross correlation between Vanguard SP 500 and Avantis Equity ETF, you can compare the effects of market volatilities on Vanguard and Avantis Equity 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 with a short position of Avantis Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Avantis Equity.

Diversification Opportunities for Vanguard and Avantis Equity

0.99

Correlation Coefficient

Vanguard  Avantis Equity

No risk reduction

The 3 months correlation between Vanguard and Avantis is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Avantis Equity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Equity ETF and Vanguard 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 SP 500 are associated (or correlated) with Avantis Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Equity ETF has no effect on the direction of Vanguard i.e., Vanguard and Avantis Equity go up and down completely randomly.

Pair Corralation between Vanguard and Avantis Equity

Considering the 90-day investment horizon Vanguard is expected to generate 1.06 times less return on investment than Avantis Equity. But when comparing it to its historical volatility, Vanguard SP 500 is 1.1 times less risky than Avantis Equity. It trades about 0.18 of its potential returns per unit of risk. Avantis Equity ETF is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,313  in Avantis Equity ETF on September 17, 2024 and sell it today you would earn a total of  758.00  from holding Avantis Equity ETF or generate 8.14% return on investment over 90 days.

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

Vanguard SP 500  vs.  Avantis Equity ETF

Vanguard SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Avantis Equity ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Equity ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Avantis Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and Avantis Equity

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

The idea behind Vanguard SP 500 and Avantis Equity ETF 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.