Correlation Between Vanguard Wellesley and Vanguard Wellington

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

Diversification Opportunities for Vanguard Wellesley and Vanguard Wellington

0.27

Correlation Coefficient

Vanguard Wellesley  Vanguard Wellington

Modest diversification

The 3 months correlation between Vanguard and Vanguard is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Wellesley Income and Vanguard Wellington Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellington 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 Vanguard Wellington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellington has no effect on the direction of Vanguard Wellesley i.e., Vanguard Wellesley and Vanguard Wellington go up and down completely randomly.

Pair Corralation between Vanguard Wellesley and Vanguard Wellington

Assuming the 90 days horizon Vanguard Wellesley Income is expected to under-perform the Vanguard Wellington. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Wellesley Income is 1.55 times less risky than Vanguard Wellington. The mutual fund trades about -0.31 of its potential returns per unit of risk. The Vanguard Wellington Fund is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  7,584  in Vanguard Wellington Fund on October 12, 2024 and sell it today you would lose (154.00) from holding Vanguard Wellington Fund or give up 2.03% of portfolio value over 90 days.

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

Vanguard Wellesley Income  vs.  Vanguard Wellington Fund

Vanguard Wellesley Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Wellesley Income has generated negative risk-adjusted returns adding no value to fund investors. 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.

Vanguard Wellington

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Wellington Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Wellington 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 Vanguard Wellington

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

The idea behind Vanguard Wellesley Income and Vanguard Wellington 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.