Correlation Between Vanguard High and FlexShares Quality

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

Diversification Opportunities for Vanguard High and FlexShares Quality

0.81

Correlation Coefficient

Vanguard High  FlexShares Quality

Very poor diversification

The 3 months correlation between Vanguard and FlexShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard High Dividend and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality 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 FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of Vanguard High i.e., Vanguard High and FlexShares Quality go up and down completely randomly.

Pair Corralation between Vanguard High and FlexShares Quality

Considering the 90-day investment horizon Vanguard High is expected to generate 1.27 times less return on investment than FlexShares Quality. In addition to that, Vanguard High is 1.14 times more volatile than FlexShares Quality Dividend. It trades about 0.07 of its total potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.1 per unit of volatility. If you would invest  6,214  in FlexShares Quality Dividend on December 5, 2024 and sell it today you would earn a total of  902.00  from holding FlexShares Quality Dividend or generate 14.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.56%
Values	Daily Returns

Vanguard High Dividend  vs.  FlexShares Quality Dividend

Vanguard High Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

FlexShares Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days FlexShares Quality Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard High and FlexShares Quality

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

The idea behind Vanguard High Dividend and FlexShares Quality Dividend 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.