Correlation Between Vanguard and Vanguard EUR

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

Diversification Opportunities for Vanguard and Vanguard EUR

0.06

Correlation Coefficient

Vanguard  Vanguard EUR

Significant diversification

The 3 months correlation between Vanguard and Vanguard is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Vanguard EUR Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard EUR Eurozone 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 Vanguard EUR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard EUR Eurozone has no effect on the direction of Vanguard i.e., Vanguard and Vanguard EUR go up and down completely randomly.

Pair Corralation between Vanguard and Vanguard EUR

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the Vanguard EUR. In addition to that, Vanguard is 3.24 times more volatile than Vanguard EUR Eurozone. It trades about -0.07 of its total potential returns per unit of risk. Vanguard EUR Eurozone is currently generating about -0.01 per unit of volatility. If you would invest  2,121  in Vanguard EUR Eurozone on December 25, 2024 and sell it today you would lose (5.00) from holding Vanguard EUR Eurozone or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Vanguard SP 500  vs.  Vanguard EUR Eurozone

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard EUR Eurozone

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard EUR Eurozone has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard EUR is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and Vanguard EUR

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

The idea behind Vanguard SP 500 and Vanguard EUR Eurozone 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.