Correlation Between Vanguard Target and Vanguard Diversified

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

By analyzing existing cross correlation between Vanguard Target Retirement and Vanguard Diversified Equity, you can compare the effects of market volatilities on Vanguard Target and Vanguard Diversified 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 Target with a short position of Vanguard Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Target and Vanguard Diversified.

Diversification Opportunities for Vanguard Target and Vanguard Diversified

0.85

Correlation Coefficient

Vanguard Target  Vanguard Diversified

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Target Retirement and Vanguard Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Diversified and Vanguard Target 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 Target Retirement are associated (or correlated) with Vanguard Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Diversified has no effect on the direction of Vanguard Target i.e., Vanguard Target and Vanguard Diversified go up and down completely randomly.

Pair Corralation between Vanguard Target and Vanguard Diversified

Assuming the 90 days horizon Vanguard Target is expected to generate 54.0 times less return on investment than Vanguard Diversified. But when comparing it to its historical volatility, Vanguard Target Retirement is 2.52 times less risky than Vanguard Diversified. It trades about 0.0 of its potential returns per unit of risk. Vanguard Diversified Equity is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,828  in Vanguard Diversified Equity on December 5, 2024 and sell it today you would earn a total of  201.00  from holding Vanguard Diversified Equity or generate 4.16% return on investment over 90 days.

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

Vanguard Target Retirement  vs.  Vanguard Diversified Equity

Vanguard Target Reti

Risk-Adjusted Performance

Very Weak

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

Vanguard Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Diversified Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Target and Vanguard Diversified

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

The idea behind Vanguard Target Retirement and Vanguard Diversified Equity 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.