Correlation Between Vanguard Emerging and Vanguard FTSE

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

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

Diversification Opportunities for Vanguard Emerging and Vanguard FTSE

0.67

Correlation Coefficient

Vanguard Emerging  Vanguard FTSE

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 Emerging Markets and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Vanguard Emerging and Vanguard FTSE

Given the investment horizon of 90 days Vanguard Emerging Markets is expected to generate 0.47 times more return on investment than Vanguard FTSE. However, Vanguard Emerging Markets is 2.13 times less risky than Vanguard FTSE. It trades about 0.05 of its potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.01 per unit of risk. If you would invest  6,413  in Vanguard Emerging Markets on September 3, 2024 and sell it today you would earn a total of  69.00  from holding Vanguard Emerging Markets or generate 1.08% return on investment over 90 days.

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

Vanguard Emerging Markets  vs.  Vanguard FTSE All World

Vanguard Emerging Markets

Risk-Adjusted Performance

3 of 100

Modest

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

Vanguard FTSE All

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE All World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Emerging and Vanguard FTSE

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

The idea behind Vanguard Emerging Markets and Vanguard FTSE All World 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.