Correlation Between Vanguard Large and FlexShares STOXX

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

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

Diversification Opportunities for Vanguard Large and FlexShares STOXX

0.64

Correlation Coefficient

Vanguard Large  FlexShares STOXX

Poor diversification

The 3 months correlation between Vanguard and FlexShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and FlexShares STOXX ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX ESG and Vanguard Large 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 Large Cap Index are associated (or correlated) with FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX ESG has no effect on the direction of Vanguard Large i.e., Vanguard Large and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Vanguard Large and FlexShares STOXX

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.18 times more return on investment than FlexShares STOXX. However, Vanguard Large is 1.18 times more volatile than FlexShares STOXX ESG. It trades about 0.09 of its potential returns per unit of risk. FlexShares STOXX ESG is currently generating about 0.08 per unit of risk. If you would invest  27,701  in Vanguard Large Cap Index on October 27, 2024 and sell it today you would earn a total of  427.00  from holding Vanguard Large Cap Index or generate 1.54% return on investment over 90 days.

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

Vanguard Large Cap Index  vs.  FlexShares STOXX ESG

Vanguard Large Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FlexShares STOXX ESG

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX ESG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FlexShares STOXX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Large and FlexShares STOXX

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

The idea behind Vanguard Large Cap Index and FlexShares STOXX ESG 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.