Correlation Between Vanguard Wellesley and American Funds

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

By analyzing existing cross correlation between Vanguard Wellesley Income and American Funds Income, you can compare the effects of market volatilities on Vanguard Wellesley and American Funds 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 Wellesley with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Wellesley and American Funds.

Diversification Opportunities for Vanguard Wellesley and American Funds

0.8

Correlation Coefficient

Vanguard Wellesley  American Funds

Very poor diversification

The 3 months correlation between Vanguard and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Wellesley Income and American Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Income and Vanguard Wellesley 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 Wellesley Income are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Income has no effect on the direction of Vanguard Wellesley i.e., Vanguard Wellesley and American Funds go up and down completely randomly.

Pair Corralation between Vanguard Wellesley and American Funds

Assuming the 90 days horizon Vanguard Wellesley is expected to generate 1.15 times less return on investment than American Funds. In addition to that, Vanguard Wellesley is 1.11 times more volatile than American Funds Income. It trades about 0.09 of its total potential returns per unit of risk. American Funds Income is currently generating about 0.11 per unit of volatility. If you would invest  1,182  in American Funds Income on September 12, 2024 and sell it today you would earn a total of  183.00  from holding American Funds Income or generate 15.48% return on investment over 90 days.

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

Vanguard Wellesley Income  vs.  American Funds Income

Vanguard Wellesley Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Wellesley Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Wellesley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Income

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Wellesley and American Funds

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

The idea behind Vanguard Wellesley Income and American Funds Income 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.