Correlation Between Vanguard Total and VanEck Biotech

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

Diversification Opportunities for Vanguard Total and VanEck Biotech

-0.65

Correlation Coefficient

Vanguard Total  VanEck Biotech

Excellent diversification

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

Pair Corralation between Vanguard Total and VanEck Biotech

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.74 times more return on investment than VanEck Biotech. However, Vanguard Total Stock is 1.36 times less risky than VanEck Biotech. It trades about 0.15 of its potential returns per unit of risk. VanEck Biotech ETF is currently generating about -0.11 per unit of risk. If you would invest  27,752  in Vanguard Total Stock on August 30, 2024 and sell it today you would earn a total of  2,068  from holding Vanguard Total Stock or generate 7.45% return on investment over 90 days.

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

Vanguard Total Stock  vs.  VanEck Biotech ETF

Vanguard Total Stock

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in December 2024.

VanEck Biotech ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Vanguard Total and VanEck Biotech

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

The idea behind Vanguard Total Stock and VanEck Biotech ETF 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.