Correlation Between Vanguard Total and Vanguard Australian

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

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

Diversification Opportunities for Vanguard Total and Vanguard Australian

0.38

Correlation Coefficient

Vanguard Total  Vanguard Australian

Weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Market and Vanguard Australian Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Australian Fixed 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 Market are associated (or correlated) with Vanguard Australian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Australian Fixed has no effect on the direction of Vanguard Total i.e., Vanguard Total and Vanguard Australian go up and down completely randomly.

Pair Corralation between Vanguard Total and Vanguard Australian

Assuming the 90 days trading horizon Vanguard Total is expected to generate 1.27 times less return on investment than Vanguard Australian. In addition to that, Vanguard Total is 2.65 times more volatile than Vanguard Australian Fixed. It trades about 0.03 of its total potential returns per unit of risk. Vanguard Australian Fixed is currently generating about 0.11 per unit of volatility. If you would invest  4,519  in Vanguard Australian Fixed on December 2, 2024 and sell it today you would earn a total of  73.00  from holding Vanguard Australian Fixed or generate 1.62% return on investment over 90 days.

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

Vanguard Total Market  vs.  Vanguard Australian Fixed

Vanguard Total Market

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Australian Fixed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Australian Fixed are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Vanguard Australian is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Total and Vanguard Australian

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

The idea behind Vanguard Total Market and Vanguard Australian Fixed 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.