Correlation Between Vanguard Total and Adams Natural

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

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

Diversification Opportunities for Vanguard Total and Adams Natural

0.65

Correlation Coefficient

Vanguard Total  Adams Natural

Poor diversification

The 3 months correlation between Vanguard and Adams is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources and Vanguard Total 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 Total Stock are associated (or correlated) with Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Vanguard Total i.e., Vanguard Total and Adams Natural go up and down completely randomly.

Pair Corralation between Vanguard Total and Adams Natural

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 0.74 times more return on investment than Adams Natural. However, Vanguard Total Stock is 1.36 times less risky than Adams Natural. It trades about 0.19 of its potential returns per unit of risk. Adams Natural Resources is currently generating about 0.07 per unit of risk. If you would invest  25,283  in Vanguard Total Stock on September 14, 2024 and sell it today you would earn a total of  2,115  from holding Vanguard Total Stock or generate 8.37% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Adams Natural Resources

Vanguard Total Stock

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Adams Natural Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Adams Natural

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

The idea behind Vanguard Total Stock and Adams Natural Resources 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.