Correlation Between SWP Growth and Vanguard Total

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

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

Diversification Opportunities for SWP Growth and Vanguard Total

0.94

Correlation Coefficient

SWP Growth  Vanguard Total

Almost no diversification

The 3 months correlation between SWP and Vanguard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SWP Growth Income and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and SWP Growth 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 SWP Growth Income are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of SWP Growth i.e., SWP Growth and Vanguard Total go up and down completely randomly.

Pair Corralation between SWP Growth and Vanguard Total

Considering the 90-day investment horizon SWP Growth is expected to generate 2.4 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, SWP Growth Income is 1.06 times less risky than Vanguard Total. It trades about 0.04 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  28,129  in Vanguard Total Stock on September 22, 2024 and sell it today you would earn a total of  1,199  from holding Vanguard Total Stock or generate 4.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.88%
Values	Daily Returns

SWP Growth Income  vs.  Vanguard Total Stock

SWP Growth Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SWP Growth Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, SWP Growth is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Total Stock

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SWP Growth and Vanguard Total

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

The idea behind SWP Growth Income and Vanguard Total Stock 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.