Correlation Between Vanguard Total and Large Cap

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

By analyzing existing cross correlation between Vanguard Total International and Large Cap International, you can compare the effects of market volatilities on Vanguard Total and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Large Cap.

Diversification Opportunities for Vanguard Total and Large Cap

0.9

Correlation Coefficient

Vanguard Total  Large Cap

Almost no diversification

The 3 months correlation between Vanguard and Large is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total International and Large Cap International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap International 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 International are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap International has no effect on the direction of Vanguard Total i.e., Vanguard Total and Large Cap go up and down completely randomly.

Pair Corralation between Vanguard Total and Large Cap

Assuming the 90 days horizon Vanguard Total International is expected to under-perform the Large Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Total International is 1.09 times less risky than Large Cap. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Large Cap International is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,781  in Large Cap International on October 24, 2024 and sell it today you would lose (18.00) from holding Large Cap International or give up 0.65% 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 International  vs.  Large Cap International

Vanguard Total Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Large Cap

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

The idea behind Vanguard Total International and Large Cap International 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.