Correlation Between Vanguard Value and KFA Mount

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

By analyzing existing cross correlation between Vanguard Value Index and KFA Mount Lucas, you can compare the effects of market volatilities on Vanguard Value and KFA Mount 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 Value with a short position of KFA Mount. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and KFA Mount.

Diversification Opportunities for Vanguard Value and KFA Mount

-0.76

Correlation Coefficient

Vanguard Value  KFA Mount

Pay attention - limited upside

The 3 months correlation between Vanguard and KFA is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and KFA Mount Lucas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFA Mount Lucas and Vanguard Value 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 Value Index are associated (or correlated) with KFA Mount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFA Mount Lucas has no effect on the direction of Vanguard Value i.e., Vanguard Value and KFA Mount go up and down completely randomly.

Pair Corralation between Vanguard Value and KFA Mount

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 1.36 times more return on investment than KFA Mount. However, Vanguard Value is 1.36 times more volatile than KFA Mount Lucas. It trades about 0.27 of its potential returns per unit of risk. KFA Mount Lucas is currently generating about -0.05 per unit of risk. If you would invest  17,175  in Vanguard Value Index on September 5, 2024 and sell it today you would earn a total of  797.00  from holding Vanguard Value Index or generate 4.64% return on investment over 90 days.

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

Vanguard Value Index  vs.  KFA Mount Lucas

Vanguard Value Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KFA Mount Lucas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KFA Mount Lucas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, KFA Mount is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Value and KFA Mount

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

The idea behind Vanguard Value Index and KFA Mount Lucas 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.