Correlation Between Vanguard Total and Select STOXX

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

Diversification Opportunities for Vanguard Total and Select STOXX

-0.43

Correlation Coefficient

Vanguard Total  Select STOXX

Very good diversification

The 3 months correlation between Vanguard and Select is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Select STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select STOXX Europe 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 Select STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select STOXX Europe has no effect on the direction of Vanguard Total i.e., Vanguard Total and Select STOXX go up and down completely randomly.

Pair Corralation between Vanguard Total and Select STOXX

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.62 times more return on investment than Select STOXX. However, Vanguard Total Stock is 1.6 times less risky than Select STOXX. It trades about 0.25 of its potential returns per unit of risk. Select STOXX Europe is currently generating about 0.08 per unit of risk. If you would invest  27,011  in Vanguard Total Stock on September 5, 2024 and sell it today you would earn a total of  3,234  from holding Vanguard Total Stock or generate 11.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	48.44%
Values	Daily Returns

Vanguard Total Stock  vs.  Select STOXX Europe

Vanguard Total Stock

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 19 (%) 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 January 2025.

Select STOXX Europe

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Select STOXX is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Total and Select STOXX

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

The idea behind Vanguard Total Stock and Select STOXX Europe 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.