Correlation Between Vanguard Total and Basic Materials

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

Diversification Opportunities for Vanguard Total and Basic Materials

0.67

Correlation Coefficient

Vanguard Total  Basic Materials

Poor diversification

The 3 months correlation between Vanguard and Basic is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total International and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Vanguard Total i.e., Vanguard Total and Basic Materials go up and down completely randomly.

Pair Corralation between Vanguard Total and Basic Materials

Assuming the 90 days horizon Vanguard Total International is expected to generate 0.12 times more return on investment than Basic Materials. However, Vanguard Total International is 8.23 times less risky than Basic Materials. It trades about -0.28 of its potential returns per unit of risk. Basic Materials Fund is currently generating about -0.19 per unit of risk. If you would invest  13,123  in Vanguard Total International on October 4, 2024 and sell it today you would lose (448.00) from holding Vanguard Total International or give up 3.41% of portfolio value over 90 days.

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

Vanguard Total International  vs.  Basic Materials Fund

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 latest conflicting 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.

Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Total and Basic Materials

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

The idea behind Vanguard Total International and Basic Materials Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.