Correlation Between Vanguard Russell and Vanguard Total

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

By analyzing existing cross correlation between Vanguard Russell 2000 and Vanguard Total World, you can compare the effects of market volatilities on Vanguard Russell and Vanguard Total 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 Russell with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Russell and Vanguard Total.

Diversification Opportunities for Vanguard Russell and Vanguard Total

0.71

Correlation Coefficient

Vanguard Russell  Vanguard Total

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Russell 2000 and Vanguard Total World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total World and Vanguard Russell 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 Russell 2000 are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total World has no effect on the direction of Vanguard Russell i.e., Vanguard Russell and Vanguard Total go up and down completely randomly.

Pair Corralation between Vanguard Russell and Vanguard Total

Assuming the 90 days horizon Vanguard Russell 2000 is expected to generate 1.76 times more return on investment than Vanguard Total. However, Vanguard Russell is 1.76 times more volatile than Vanguard Total World. It trades about 0.07 of its potential returns per unit of risk. Vanguard Total World is currently generating about 0.04 per unit of risk. If you would invest  36,217  in Vanguard Russell 2000 on October 7, 2024 and sell it today you would earn a total of  4,790  from holding Vanguard Russell 2000 or generate 13.23% return on investment over 90 days.

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

Vanguard Russell 2000  vs.  Vanguard Total World

Vanguard Russell 2000

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Vanguard Russell is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Total World

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total World are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard Total 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 Russell and Vanguard Total

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

The idea behind Vanguard Russell 2000 and Vanguard Total World 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.