Correlation Between Vanguard Total and Capital Group

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

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

Diversification Opportunities for Vanguard Total and Capital Group

0.88

Correlation Coefficient

Vanguard Total  Capital Group

Very poor diversification

The 3 months correlation between Vanguard and Capital is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total World and Capital Group Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Fixed and Vanguard Total 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 Total World are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Fixed has no effect on the direction of Vanguard Total i.e., Vanguard Total and Capital Group go up and down completely randomly.

Pair Corralation between Vanguard Total and Capital Group

Given the investment horizon of 90 days Vanguard Total World is expected to generate 1.82 times more return on investment than Capital Group. However, Vanguard Total is 1.82 times more volatile than Capital Group Fixed. It trades about 0.26 of its potential returns per unit of risk. Capital Group Fixed is currently generating about 0.32 per unit of risk. If you would invest  6,894  in Vanguard Total World on September 2, 2024 and sell it today you would earn a total of  106.00  from holding Vanguard Total World or generate 1.54% return on investment over 90 days.

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

Vanguard Total World  vs.  Capital Group Fixed

Vanguard Total World

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total World are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Capital Group Fixed

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Group Fixed are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Capital Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Capital Group

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

The idea behind Vanguard Total World and Capital Group Fixed 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.