Correlation Between Vanguard Utilities and Vanguard Industrials

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

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

Diversification Opportunities for Vanguard Utilities and Vanguard Industrials

0.68

Correlation Coefficient

Vanguard Utilities  Vanguard Industrials

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials and Vanguard Utilities 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 Utilities Index are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Vanguard Utilities and Vanguard Industrials

Assuming the 90 days horizon Vanguard Utilities is expected to generate 1.4 times less return on investment than Vanguard Industrials. In addition to that, Vanguard Utilities is 1.06 times more volatile than Vanguard Industrials Index. It trades about 0.15 of its total potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.22 per unit of volatility. If you would invest  12,613  in Vanguard Industrials Index on September 3, 2024 and sell it today you would earn a total of  1,722  from holding Vanguard Industrials Index or generate 13.65% return on investment over 90 days.

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

Vanguard Utilities Index  vs.  Vanguard Industrials Index

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Industrials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Industrials showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Utilities and Vanguard Industrials

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

The idea behind Vanguard Utilities Index and Vanguard Industrials Index 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.