Correlation Between Vanguard Growth and Vanguard Capital

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

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

Diversification Opportunities for Vanguard Growth and Vanguard Capital

0.86

Correlation Coefficient

Vanguard Growth  Vanguard Capital

Very poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth Fund and Vanguard Capital Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Capital Opp and Vanguard Growth 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 Growth Fund are associated (or correlated) with Vanguard Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Capital Opp has no effect on the direction of Vanguard Growth i.e., Vanguard Growth and Vanguard Capital go up and down completely randomly.

Pair Corralation between Vanguard Growth and Vanguard Capital

Assuming the 90 days horizon Vanguard Growth Fund is expected to generate 1.31 times more return on investment than Vanguard Capital. However, Vanguard Growth is 1.31 times more volatile than Vanguard Capital Opportunity. It trades about 0.12 of its potential returns per unit of risk. Vanguard Capital Opportunity is currently generating about 0.07 per unit of risk. If you would invest  14,600  in Vanguard Growth Fund on September 13, 2024 and sell it today you would earn a total of  5,658  from holding Vanguard Growth Fund or generate 38.75% return on investment over 90 days.

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

Vanguard Growth Fund  vs.  Vanguard Capital Opportunity

Vanguard Growth

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Capital Opp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Capital Opportunity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Capital 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 Growth and Vanguard Capital

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

The idea behind Vanguard Growth Fund and Vanguard Capital Opportunity 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.