Correlation Between Vanguard Total and FlexShares ESG

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

Diversification Opportunities for Vanguard Total and FlexShares ESG

-0.59

Correlation Coefficient

Vanguard Total  FlexShares ESG

Excellent diversification

The 3 months correlation between Vanguard and FlexShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and FlexShares ESG Climate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares ESG Climate 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 FlexShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares ESG Climate has no effect on the direction of Vanguard Total i.e., Vanguard Total and FlexShares ESG go up and down completely randomly.

Pair Corralation between Vanguard Total and FlexShares ESG

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 2.06 times more return on investment than FlexShares ESG. However, Vanguard Total is 2.06 times more volatile than FlexShares ESG Climate. It trades about 0.22 of its potential returns per unit of risk. FlexShares ESG Climate is currently generating about 0.02 per unit of risk. If you would invest  27,155  in Vanguard Total Stock on September 1, 2024 and sell it today you would earn a total of  2,831  from holding Vanguard Total Stock or generate 10.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Vanguard Total Stock  vs.  FlexShares ESG Climate

Vanguard Total Stock

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 17 (%) 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.

FlexShares ESG Climate

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares ESG Climate are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, FlexShares ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Total and FlexShares ESG

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

The idea behind Vanguard Total Stock and FlexShares ESG Climate 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.