Correlation Between Global X and Vanguard Multifactor

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

By analyzing existing cross correlation between Global X MSCI and Vanguard Multifactor, you can compare the effects of market volatilities on Global X and Vanguard Multifactor 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 Global X with a short position of Vanguard Multifactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and Vanguard Multifactor.

Diversification Opportunities for Global X and Vanguard Multifactor

-0.49

Correlation Coefficient

Global X  Vanguard Multifactor

Very good diversification

The 3 months correlation between Global and Vanguard is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Global X MSCI and Vanguard Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Multifactor and Global X 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 Global X MSCI are associated (or correlated) with Vanguard Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Multifactor has no effect on the direction of Global X i.e., Global X and Vanguard Multifactor go up and down completely randomly.

Pair Corralation between Global X and Vanguard Multifactor

Given the investment horizon of 90 days Global X is expected to generate 1.89 times less return on investment than Vanguard Multifactor. But when comparing it to its historical volatility, Global X MSCI is 1.04 times less risky than Vanguard Multifactor. It trades about 0.04 of its potential returns per unit of risk. Vanguard Multifactor is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,574  in Vanguard Multifactor on September 20, 2024 and sell it today you would earn a total of  3,470  from holding Vanguard Multifactor or generate 36.24% return on investment over 90 days.

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

Global X MSCI  vs.  Vanguard Multifactor

Global X MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Global X is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Vanguard Multifactor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Global X and Vanguard Multifactor

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

The idea behind Global X MSCI and Vanguard Multifactor 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.