Correlation Between Vanguard and Vanguard Health

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

Diversification Opportunities for Vanguard and Vanguard Health

-0.68

Correlation Coefficient

Vanguard  Vanguard Health

Excellent diversification

The 3 months correlation between Vanguard and Vanguard is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Vanguard i.e., Vanguard and Vanguard Health go up and down completely randomly.

Pair Corralation between Vanguard and Vanguard Health

Considering the 90-day investment horizon Vanguard SP 500 is expected to generate 1.1 times more return on investment than Vanguard Health. However, Vanguard is 1.1 times more volatile than Vanguard Health Care. It trades about 0.12 of its potential returns per unit of risk. Vanguard Health Care is currently generating about 0.04 per unit of risk. If you would invest  40,819  in Vanguard SP 500 on September 12, 2024 and sell it today you would earn a total of  14,614  from holding Vanguard SP 500 or generate 35.8% return on investment over 90 days.

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

Vanguard SP 500  vs.  Vanguard Health Care

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) 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.

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard and Vanguard Health

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

The idea behind Vanguard SP 500 and Vanguard Health Care 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.