Correlation Between Vanguard Growth and KFA Mount

Can any of the company-specific risk be diversified away by investing in both Vanguard Growth 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 Growth 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 Growth Index and KFA Mount Lucas, you can compare the effects of market volatilities on Vanguard Growth 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 Growth with a short position of KFA Mount. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Growth and KFA Mount.

Diversification Opportunities for Vanguard Growth and KFA Mount

-0.78

Correlation Coefficient

Vanguard Growth  KFA Mount

Pay attention - limited upside

The 3 months correlation between Vanguard and KFA is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth 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 Growth 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 Growth 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 Growth i.e., Vanguard Growth and KFA Mount go up and down completely randomly.

Pair Corralation between Vanguard Growth and KFA Mount

Considering the 90-day investment horizon Vanguard Growth Index is expected to generate 1.32 times more return on investment than KFA Mount. However, Vanguard Growth is 1.32 times more volatile than KFA Mount Lucas. It trades about 0.22 of its potential returns per unit of risk. KFA Mount Lucas is currently generating about -0.13 per unit of risk. If you would invest  36,318  in Vanguard Growth Index on September 5, 2024 and sell it today you would earn a total of  5,170  from holding Vanguard Growth Index or generate 14.24% return on investment over 90 days.

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

Vanguard Growth Index  vs.  KFA Mount Lucas

Vanguard Growth Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Growth reported solid returns over the last few months and may actually be approaching a breakup point.

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 Growth and KFA Mount

The main advantage of trading using opposite Vanguard Growth and KFA Mount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Growth 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 Growth 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.