Correlation Between Vanguard Large and X Square

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

Diversification Opportunities for Vanguard Large and X Square

0.85

Correlation Coefficient

Vanguard Large  X Square

Very poor diversification

The 3 months correlation between Vanguard and SQBIX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and X Square Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X Square Balanced 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 X Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X Square Balanced has no effect on the direction of Vanguard Large i.e., Vanguard Large and X Square go up and down completely randomly.

Pair Corralation between Vanguard Large and X Square

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to under-perform the X Square. In addition to that, Vanguard Large is 1.47 times more volatile than X Square Balanced. It trades about -0.05 of its total potential returns per unit of risk. X Square Balanced is currently generating about -0.01 per unit of volatility. If you would invest  1,380  in X Square Balanced on December 29, 2024 and sell it today you would lose (9.00) from holding X Square Balanced or give up 0.65% of portfolio value over 90 days.

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

Vanguard Large Cap Index  vs.  X Square Balanced

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Large Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

X Square Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days X Square Balanced has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, X Square is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Large and X Square

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

The idea behind Vanguard Large Cap Index and X Square Balanced 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.