Correlation Between Vanguard Funds and China Water

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

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

Diversification Opportunities for Vanguard Funds and China Water

0.14

Correlation Coefficient

Vanguard Funds  China Water

Average diversification

The 3 months correlation between Vanguard and China is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Funds Public and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs and Vanguard Funds 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 Funds Public are associated (or correlated) with China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of Vanguard Funds i.e., Vanguard Funds and China Water go up and down completely randomly.

Pair Corralation between Vanguard Funds and China Water

Assuming the 90 days trading horizon Vanguard Funds is expected to generate 3.84 times less return on investment than China Water. But when comparing it to its historical volatility, Vanguard Funds Public is 4.91 times less risky than China Water. It trades about 0.12 of its potential returns per unit of risk. China Water Affairs is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  41.00  in China Water Affairs on September 21, 2024 and sell it today you would earn a total of  18.00  from holding China Water Affairs or generate 43.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.17%
Values	Daily Returns

Vanguard Funds Public  vs.  China Water Affairs

Vanguard Funds Public

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds Public are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vanguard Funds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Water Affairs

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Water Affairs are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, China Water reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Funds and China Water

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

The idea behind Vanguard Funds Public and China Water Affairs 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.