Correlation Between Specialized Technology and Vanguard Mega

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

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

Diversification Opportunities for Specialized Technology and Vanguard Mega

0.74

Correlation Coefficient

Specialized Technology  Vanguard Mega

Poor diversification

The 3 months correlation between SPECIALIZED and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Specialized Technology Fund and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap and Specialized Technology 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 Specialized Technology Fund are associated (or correlated) with Vanguard Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of Specialized Technology i.e., Specialized Technology and Vanguard Mega go up and down completely randomly.

Pair Corralation between Specialized Technology and Vanguard Mega

Assuming the 90 days horizon Specialized Technology Fund is expected to generate 0.8 times more return on investment than Vanguard Mega. However, Specialized Technology Fund is 1.24 times less risky than Vanguard Mega. It trades about -0.09 of its potential returns per unit of risk. Vanguard Mega Cap is currently generating about -0.13 per unit of risk. If you would invest  1,199  in Specialized Technology Fund on December 24, 2024 and sell it today you would lose (73.00) from holding Specialized Technology Fund or give up 6.09% of portfolio value over 90 days.

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

Specialized Technology Fund  vs.  Vanguard Mega Cap

Specialized Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Specialized Technology Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Specialized Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Mega Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mega Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Specialized Technology and Vanguard Mega

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

The idea behind Specialized Technology Fund and Vanguard Mega Cap 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.

Check out your portfolio center.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.