Correlation Between Vanguard Large and Xtrackers

Can any of the company-specific risk be diversified away by investing in both Vanguard Large and Xtrackers 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 Xtrackers 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 Xtrackers SP 500, you can compare the effects of market volatilities on Vanguard Large and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Large and Xtrackers.

Diversification Opportunities for Vanguard Large and Xtrackers

0.99

Correlation Coefficient

Vanguard Large  Xtrackers

No risk reduction

The 3 months correlation between Vanguard and Xtrackers is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of Vanguard Large i.e., Vanguard Large and Xtrackers go up and down completely randomly.

Pair Corralation between Vanguard Large and Xtrackers

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 1.02 times more return on investment than Xtrackers. However, Vanguard Large is 1.02 times more volatile than Xtrackers SP 500. It trades about 0.08 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.07 per unit of risk. If you would invest  24,963  in Vanguard Large Cap Index on September 24, 2024 and sell it today you would earn a total of  2,355  from holding Vanguard Large Cap Index or generate 9.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.21%
Values	Daily Returns

Vanguard Large Cap Index  vs.  Xtrackers SP 500

Vanguard Large Cap

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 6 (%) 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.

Xtrackers SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Xtrackers 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 Large and Xtrackers

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

The idea behind Vanguard Large Cap Index and Xtrackers SP 500 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.