Correlation Between North Star and Vanguard Explorer

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

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

Diversification Opportunities for North Star and Vanguard Explorer

0.25

Correlation Coefficient

North Star  Vanguard Explorer

Modest diversification

The 3 months correlation between North and Vanguard is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding North Star Opportunity and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer and North Star 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 North Star Opportunity are associated (or correlated) with Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of North Star i.e., North Star and Vanguard Explorer go up and down completely randomly.

Pair Corralation between North Star and Vanguard Explorer

Assuming the 90 days horizon North Star Opportunity is expected to under-perform the Vanguard Explorer. But the mutual fund apears to be less risky and, when comparing its historical volatility, North Star Opportunity is 1.31 times less risky than Vanguard Explorer. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Vanguard Explorer Fund is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  11,498  in Vanguard Explorer Fund on September 19, 2024 and sell it today you would lose (100.00) from holding Vanguard Explorer Fund or give up 0.87% of portfolio value over 90 days.

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

North Star Opportunity  vs.  Vanguard Explorer Fund

North Star Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with North Star and Vanguard Explorer

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

The idea behind North Star Opportunity and Vanguard Explorer Fund 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 Transaction History module to view history of all your transactions and understand their impact on performance.