Correlation Between Vanguard High and Overlay Shares

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

By analyzing existing cross correlation between Vanguard High Dividend and Overlay Shares Large, you can compare the effects of market volatilities on Vanguard High and Overlay Shares 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 High with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard High and Overlay Shares.

Diversification Opportunities for Vanguard High and Overlay Shares

0.64

Correlation Coefficient

Vanguard High  Overlay Shares

Poor diversification

The 3 months correlation between Vanguard and Overlay is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Dividend and Overlay Shares Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Large and Vanguard High 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 High Dividend are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Large has no effect on the direction of Vanguard High i.e., Vanguard High and Overlay Shares go up and down completely randomly.

Pair Corralation between Vanguard High and Overlay Shares

Considering the 90-day investment horizon Vanguard High Dividend is expected to generate 0.63 times more return on investment than Overlay Shares. However, Vanguard High Dividend is 1.58 times less risky than Overlay Shares. It trades about 0.04 of its potential returns per unit of risk. Overlay Shares Large is currently generating about -0.06 per unit of risk. If you would invest  12,649  in Vanguard High Dividend on December 28, 2024 and sell it today you would earn a total of  238.00  from holding Vanguard High Dividend or generate 1.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Vanguard High Dividend  vs.  Overlay Shares Large

Vanguard High Dividend

Risk-Adjusted Performance

Insignificant

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

Overlay Shares Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Overlay Shares Large has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Overlay Shares is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard High and Overlay Shares

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

The idea behind Vanguard High Dividend and Overlay Shares Large 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .