Correlation Between Vanguard Value and Gotham Enhanced

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

Diversification Opportunities for Vanguard Value and Gotham Enhanced

0.66

Correlation Coefficient

Vanguard Value  Gotham Enhanced

Poor diversification

The 3 months correlation between Vanguard and Gotham is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Gotham Enhanced 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Enhanced 500 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 Gotham Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Enhanced 500 has no effect on the direction of Vanguard Value i.e., Vanguard Value and Gotham Enhanced go up and down completely randomly.

Pair Corralation between Vanguard Value and Gotham Enhanced

Assuming the 90 days horizon Vanguard Value Index is expected to generate 0.68 times more return on investment than Gotham Enhanced. However, Vanguard Value Index is 1.46 times less risky than Gotham Enhanced. It trades about 0.07 of its potential returns per unit of risk. Gotham Enhanced 500 is currently generating about 0.05 per unit of risk. If you would invest  5,298  in Vanguard Value Index on October 12, 2024 and sell it today you would earn a total of  1,342  from holding Vanguard Value Index or generate 25.33% return on investment over 90 days.

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

Vanguard Value Index  vs.  Gotham Enhanced 500

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

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.

Gotham Enhanced 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gotham Enhanced 500 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 Gotham Enhanced

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

The idea behind Vanguard Value Index and Gotham Enhanced 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .