Correlation Between Vanguard Value and Fairholme Fund

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

Diversification Opportunities for Vanguard Value and Fairholme Fund

-0.53

Correlation Coefficient

Vanguard Value  Fairholme Fund

Excellent diversification

The 3 months correlation between Vanguard and Fairholme is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairholme Fund 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 Fairholme Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairholme Fund has no effect on the direction of Vanguard Value i.e., Vanguard Value and Fairholme Fund go up and down completely randomly.

Pair Corralation between Vanguard Value and Fairholme Fund

Assuming the 90 days horizon Vanguard Value Index is expected to generate 0.64 times more return on investment than Fairholme Fund. However, Vanguard Value Index is 1.56 times less risky than Fairholme Fund. It trades about -0.1 of its potential returns per unit of risk. The Fairholme Fund is currently generating about -0.37 per unit of risk. If you would invest  6,988  in Vanguard Value Index on September 12, 2024 and sell it today you would lose (75.00) from holding Vanguard Value Index or give up 1.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Vanguard Value Index  vs.  The Fairholme Fund

Vanguard Value Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. 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.

Fairholme Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Value and Fairholme Fund

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

The idea behind Vanguard Value Index and The Fairholme Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.