Correlation Between Vanguard FTSE and Vanguard ESG

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

By analyzing existing cross correlation between Vanguard FTSE All World and Vanguard ESG Developed, you can compare the effects of market volatilities on Vanguard FTSE and Vanguard ESG 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 FTSE with a short position of Vanguard ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and Vanguard ESG.

Diversification Opportunities for Vanguard FTSE and Vanguard ESG

0.67

Correlation Coefficient

Vanguard FTSE  Vanguard ESG

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and Vanguard ESG Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Developed and Vanguard FTSE 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 FTSE All World are associated (or correlated) with Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Developed has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Vanguard ESG go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Vanguard ESG

Assuming the 90 days trading horizon Vanguard FTSE All World is expected to generate 1.12 times more return on investment than Vanguard ESG. However, Vanguard FTSE is 1.12 times more volatile than Vanguard ESG Developed. It trades about 0.14 of its potential returns per unit of risk. Vanguard ESG Developed is currently generating about 0.02 per unit of risk. If you would invest  12,682  in Vanguard FTSE All World on October 4, 2024 and sell it today you would earn a total of  766.00  from holding Vanguard FTSE All World or generate 6.04% return on investment over 90 days.

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

Vanguard FTSE All World  vs.  Vanguard ESG Developed

Vanguard FTSE All

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard ESG Developed

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard ESG Developed are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard FTSE and Vanguard ESG

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

The idea behind Vanguard FTSE All World and Vanguard ESG Developed 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.