Correlation Between Vulcan Value and Vanguard

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

By analyzing existing cross correlation between Vulcan Value Partners and Vanguard SP 500, you can compare the effects of market volatilities on Vulcan Value and Vanguard 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 Vulcan Value with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Value and Vanguard.

Diversification Opportunities for Vulcan Value and Vanguard

0.88

Correlation Coefficient

Vulcan Value  Vanguard

Very poor diversification

The 3 months correlation between Vulcan and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Value Partners and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Vulcan 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 Vulcan Value Partners are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Vulcan Value i.e., Vulcan Value and Vanguard go up and down completely randomly.

Pair Corralation between Vulcan Value and Vanguard

Assuming the 90 days horizon Vulcan Value is expected to generate 1.67 times less return on investment than Vanguard. In addition to that, Vulcan Value is 1.15 times more volatile than Vanguard SP 500. It trades about 0.06 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.11 per unit of volatility. If you would invest  47,504  in Vanguard SP 500 on September 16, 2024 and sell it today you would earn a total of  8,057  from holding Vanguard SP 500 or generate 16.96% return on investment over 90 days.

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

Vulcan Value Partners  vs.  Vanguard SP 500

Vulcan Value Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Value Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vulcan Value and Vanguard

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

The idea behind Vulcan Value Partners and Vanguard 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.