Correlation Between Vanguard and Lyxor Japan

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

By analyzing existing cross correlation between Vanguard SP 500 and Lyxor Japan UCITS, you can compare the effects of market volatilities on Vanguard and Lyxor Japan 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 with a short position of Lyxor Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Lyxor Japan.

Diversification Opportunities for Vanguard and Lyxor Japan

0.72

Correlation Coefficient

Vanguard  Lyxor Japan

Poor diversification

The 3 months correlation between Vanguard and Lyxor is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Lyxor Japan UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Japan UCITS and Vanguard 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 SP 500 are associated (or correlated) with Lyxor Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Japan UCITS has no effect on the direction of Vanguard i.e., Vanguard and Lyxor Japan go up and down completely randomly.

Pair Corralation between Vanguard and Lyxor Japan

Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 0.81 times more return on investment than Lyxor Japan. However, Vanguard SP 500 is 1.23 times less risky than Lyxor Japan. It trades about 0.24 of its potential returns per unit of risk. Lyxor Japan UCITS is currently generating about 0.12 per unit of risk. If you would invest  8,980  in Vanguard SP 500 on September 12, 2024 and sell it today you would earn a total of  1,166  from holding Vanguard SP 500 or generate 12.98% return on investment over 90 days.

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

Vanguard SP 500  vs.  Lyxor Japan UCITS

Vanguard SP 500

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lyxor Japan UCITS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Japan UCITS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Lyxor Japan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and Lyxor Japan

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

The idea behind Vanguard SP 500 and Lyxor Japan UCITS 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.