Correlation Between Vanguard FTSE and Legal General

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

Diversification Opportunities for Vanguard FTSE and Legal General

0.9

Correlation Coefficient

Vanguard FTSE  Legal General

Almost no diversification

The 3 months correlation between Vanguard and Legal is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and Legal General UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General UCITS 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 Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General UCITS has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Legal General go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Legal General

Assuming the 90 days trading horizon Vanguard FTSE All World is expected to generate 0.63 times more return on investment than Legal General. However, Vanguard FTSE All World is 1.58 times less risky than Legal General. It trades about -0.07 of its potential returns per unit of risk. Legal General UCITS is currently generating about -0.05 per unit of risk. If you would invest  13,211  in Vanguard FTSE All World on December 21, 2024 and sell it today you would lose (515.00) from holding Vanguard FTSE All World or give up 3.9% of portfolio value over 90 days.

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

Vanguard FTSE All World  vs.  Legal General UCITS

Vanguard FTSE All

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Legal General UCITS

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard FTSE and Legal General

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

The idea behind Vanguard FTSE All World and Legal General UCITS 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.