Correlation Between Vanguard Funds and IncomeShares SP500

Can any of the company-specific risk be diversified away by investing in both Vanguard Funds and IncomeShares SP500 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 IncomeShares SP500 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 IncomeShares SP500 Options, you can compare the effects of market volatilities on Vanguard Funds and IncomeShares SP500 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 IncomeShares SP500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Funds and IncomeShares SP500.

Diversification Opportunities for Vanguard Funds and IncomeShares SP500

0.76

Correlation Coefficient

Vanguard Funds  IncomeShares SP500

Poor diversification

The 3 months correlation between Vanguard and IncomeShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Funds Public and IncomeShares SP500 Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares SP500 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 IncomeShares SP500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares SP500 has no effect on the direction of Vanguard Funds i.e., Vanguard Funds and IncomeShares SP500 go up and down completely randomly.

Pair Corralation between Vanguard Funds and IncomeShares SP500

Assuming the 90 days trading horizon Vanguard Funds Public is expected to generate 1.16 times more return on investment than IncomeShares SP500. However, Vanguard Funds is 1.16 times more volatile than IncomeShares SP500 Options. It trades about -0.02 of its potential returns per unit of risk. IncomeShares SP500 Options is currently generating about -0.31 per unit of risk. If you would invest  10,959  in Vanguard Funds Public on October 7, 2024 and sell it today you would lose (27.00) from holding Vanguard Funds Public or give up 0.25% of portfolio value over 90 days.

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

Vanguard Funds Public  vs.  IncomeShares SP500 Options

Vanguard Funds Public

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds Public are ranked lower than 14 (%) 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 February 2025.

IncomeShares SP500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IncomeShares SP500 Options has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IncomeShares SP500 is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Funds and IncomeShares SP500

The main advantage of trading using opposite Vanguard Funds and IncomeShares SP500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Funds position performs unexpectedly, IncomeShares SP500 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 IncomeShares SP500 will offset losses from the drop in IncomeShares SP500's long position.

The idea behind Vanguard Funds Public and IncomeShares SP500 Options 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.