Correlation Between Vanguard Total and Optimize Strategy

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

Diversification Opportunities for Vanguard Total and Optimize Strategy

0.97

Correlation Coefficient

Vanguard Total  Optimize Strategy

Almost no diversification

The 3 months correlation between Vanguard and Optimize is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Optimize Strategy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimize Strategy Index 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 Optimize Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimize Strategy Index has no effect on the direction of Vanguard Total i.e., Vanguard Total and Optimize Strategy go up and down completely randomly.

Pair Corralation between Vanguard Total and Optimize Strategy

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.84 times more return on investment than Optimize Strategy. However, Vanguard Total Stock is 1.19 times less risky than Optimize Strategy. It trades about -0.09 of its potential returns per unit of risk. Optimize Strategy Index is currently generating about -0.12 per unit of risk. If you would invest  28,980  in Vanguard Total Stock on December 30, 2024 and sell it today you would lose (1,637) from holding Vanguard Total Stock or give up 5.65% of portfolio value over 90 days.

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

Vanguard Total Stock  vs.  Optimize Strategy Index

Vanguard Total Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Total Stock has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Optimize Strategy Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimize Strategy Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Vanguard Total and Optimize Strategy

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

The idea behind Vanguard Total Stock and Optimize Strategy Index 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.