Correlation Between Vanguard Large and VanEck LongFlat

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

Diversification Opportunities for Vanguard Large and VanEck LongFlat

0.84

Correlation Coefficient

Vanguard Large  VanEck LongFlat

Very poor diversification

The 3 months correlation between Vanguard and VanEck is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and VanEck LongFlat Trend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck LongFlat Trend 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 VanEck LongFlat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck LongFlat Trend has no effect on the direction of Vanguard Large i.e., Vanguard Large and VanEck LongFlat go up and down completely randomly.

Pair Corralation between Vanguard Large and VanEck LongFlat

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.02 times more return on investment than VanEck LongFlat. However, Vanguard Large is 1.02 times more volatile than VanEck LongFlat Trend. It trades about 0.2 of its potential returns per unit of risk. VanEck LongFlat Trend is currently generating about 0.2 per unit of risk. If you would invest  25,240  in Vanguard Large Cap Index on September 3, 2024 and sell it today you would earn a total of  2,494  from holding Vanguard Large Cap Index or generate 9.88% return on investment over 90 days.

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

Vanguard Large Cap Index  vs.  VanEck LongFlat Trend

Vanguard Large Cap

Risk-Adjusted Performance

16 of 100

Solid

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

VanEck LongFlat Trend

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck LongFlat Trend are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, VanEck LongFlat may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Large and VanEck LongFlat

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

The idea behind Vanguard Large Cap Index and VanEck LongFlat Trend 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.