Correlation Between Vanguard Utilities and Vanguard Consumer

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

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

Diversification Opportunities for Vanguard Utilities and Vanguard Consumer

0.56

Correlation Coefficient

Vanguard Utilities  Vanguard Consumer

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and Vanguard Consumer Discretionar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer and Vanguard Utilities 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 Utilities Index are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Vanguard Utilities and Vanguard Consumer

Considering the 90-day investment horizon Vanguard Utilities is expected to generate 2.92 times less return on investment than Vanguard Consumer. But when comparing it to its historical volatility, Vanguard Utilities Index is 1.08 times less risky than Vanguard Consumer. It trades about 0.1 of its potential returns per unit of risk. Vanguard Consumer Discretionary is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  31,814  in Vanguard Consumer Discretionary on September 5, 2024 and sell it today you would earn a total of  6,071  from holding Vanguard Consumer Discretionary or generate 19.08% return on investment over 90 days.

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

Vanguard Utilities Index  vs.  Vanguard Consumer Discretionar

Vanguard Utilities Index

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard Utilities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Consumer

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Vanguard Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Utilities and Vanguard Consumer

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

The idea behind Vanguard Utilities Index and Vanguard Consumer Discretionary 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.