Correlation Between Vanguard International and Vanguard

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

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

Diversification Opportunities for Vanguard International and Vanguard

0.5

Correlation Coefficient

Vanguard International  Vanguard

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International Equity 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 Vanguard International 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 International Equity 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 Vanguard International i.e., Vanguard International and Vanguard go up and down completely randomly.

Pair Corralation between Vanguard International and Vanguard

Assuming the 90 days trading horizon Vanguard International Equity is expected to generate 0.97 times more return on investment than Vanguard. However, Vanguard International Equity is 1.03 times less risky than Vanguard. It trades about 0.03 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about -0.04 per unit of risk. If you would invest  91,528  in Vanguard International Equity on December 5, 2024 and sell it today you would earn a total of  1,273  from holding Vanguard International Equity or generate 1.39% return on investment over 90 days.

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

Vanguard International Equity  vs.  Vanguard SP 500

Vanguard International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard International Equity are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vanguard International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard International and Vanguard

The main advantage of trading using opposite Vanguard International and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International 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 Vanguard International Equity 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.