Correlation Between Vanguard Developed and Vanguard European

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

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

Diversification Opportunities for Vanguard Developed and Vanguard European

0.99

Correlation Coefficient

Vanguard Developed  Vanguard European

No risk reduction

The 3 months correlation between Vanguard and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Vanguard European Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard European Stock and Vanguard Developed 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 Developed Markets are associated (or correlated) with Vanguard European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard European Stock has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Vanguard European go up and down completely randomly.

Pair Corralation between Vanguard Developed and Vanguard European

Assuming the 90 days horizon Vanguard Developed is expected to generate 1.53 times less return on investment than Vanguard European. But when comparing it to its historical volatility, Vanguard Developed Markets is 1.09 times less risky than Vanguard European. It trades about 0.14 of its potential returns per unit of risk. Vanguard European Stock is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,955  in Vanguard European Stock on December 31, 2024 and sell it today you would earn a total of  916.00  from holding Vanguard European Stock or generate 11.51% return on investment over 90 days.

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

Vanguard Developed Markets  vs.  Vanguard European Stock

Vanguard Developed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Developed Markets are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Developed may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Vanguard European Stock

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard European Stock are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard European may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Vanguard Developed and Vanguard European

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

The idea behind Vanguard Developed Markets and Vanguard European Stock 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 Transaction History module to view history of all your transactions and understand their impact on performance.