Correlation Between Vanguard ESG and Vanguard FTSE

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

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

Diversification Opportunities for Vanguard ESG and Vanguard FTSE

0.57

Correlation Coefficient

Vanguard ESG  Vanguard FTSE

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard ESG Developed and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All and Vanguard ESG 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 ESG Developed are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All has no effect on the direction of Vanguard ESG i.e., Vanguard ESG and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Vanguard ESG and Vanguard FTSE

Assuming the 90 days trading horizon Vanguard ESG Developed is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard ESG Developed is 1.18 times less risky than Vanguard FTSE. The etf trades about -0.01 of its potential returns per unit of risk. The Vanguard FTSE All World is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  12,424  in Vanguard FTSE All World on September 29, 2024 and sell it today you would earn a total of  854.00  from holding Vanguard FTSE All World or generate 6.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Vanguard ESG Developed  vs.  Vanguard FTSE All World

Vanguard ESG Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard ESG Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard FTSE All

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard ESG and Vanguard FTSE

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

The idea behind Vanguard ESG Developed and Vanguard FTSE All World 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.