Correlation Between Vanguard and UST Inc

Can any of the company-specific risk be diversified away by investing in both Vanguard and UST Inc 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 UST Inc 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 ProShares Ultra 7 10, you can compare the effects of market volatilities on Vanguard and UST Inc 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 UST Inc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and UST Inc.

Diversification Opportunities for Vanguard and UST Inc

0.41

Correlation Coefficient

Vanguard  UST Inc

Very weak diversification

The 3 months correlation between Vanguard and UST is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and ProShares Ultra 7 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Ultra 7 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 UST Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Ultra 7 has no effect on the direction of Vanguard i.e., Vanguard and UST Inc go up and down completely randomly.

Pair Corralation between Vanguard and UST Inc

Considering the 90-day investment horizon Vanguard SP 500 is expected to under-perform the UST Inc. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP 500 is 1.01 times less risky than UST Inc. The etf trades about -0.02 of its potential returns per unit of risk. The ProShares Ultra 7 10 is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,270  in ProShares Ultra 7 10 on November 28, 2024 and sell it today you would lose (12.00) from holding ProShares Ultra 7 10 or give up 0.28% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  ProShares Ultra 7 10

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ProShares Ultra 7

Risk-Adjusted Performance

Weak

Over the last 90 days ProShares Ultra 7 10 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, UST Inc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard and UST Inc

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

The idea behind Vanguard SP 500 and ProShares Ultra 7 10 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.