Correlation Between Vanguard Value and Large Company

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

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

Diversification Opportunities for Vanguard Value and Large Company

0.64

Correlation Coefficient

Vanguard Value  Large Company

Poor diversification

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

Pair Corralation between Vanguard Value and Large Company

Assuming the 90 days horizon Vanguard Value Index is expected to generate 0.63 times more return on investment than Large Company. However, Vanguard Value Index is 1.58 times less risky than Large Company. It trades about -0.02 of its potential returns per unit of risk. Large Pany Value is currently generating about -0.14 per unit of risk. If you would invest  7,008  in Vanguard Value Index on December 2, 2024 and sell it today you would lose (60.00) from holding Vanguard Value Index or give up 0.86% of portfolio value over 90 days.

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

Vanguard Value Index  vs.  Large Pany Value

Vanguard Value Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Pany Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Pany Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Value and Large Company

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

The idea behind Vanguard Value Index and Large Pany Value 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.