Correlation Between Vanguard Consumer and KraneShares Trust

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

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

Diversification Opportunities for Vanguard Consumer and KraneShares Trust

-0.53

Correlation Coefficient

Vanguard Consumer  KraneShares Trust

Excellent diversification

The 3 months correlation between Vanguard and KraneShares is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and KraneShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares Trust and Vanguard Consumer 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 Consumer Discretionary are associated (or correlated) with KraneShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares Trust has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and KraneShares Trust go up and down completely randomly.

Pair Corralation between Vanguard Consumer and KraneShares Trust

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to generate 1.02 times more return on investment than KraneShares Trust. However, Vanguard Consumer is 1.02 times more volatile than KraneShares Trust. It trades about 0.09 of its potential returns per unit of risk. KraneShares Trust is currently generating about -0.02 per unit of risk. If you would invest  23,025  in Vanguard Consumer Discretionary on August 30, 2024 and sell it today you would earn a total of  14,226  from holding Vanguard Consumer Discretionary or generate 61.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	62.63%
Values	Daily Returns

Vanguard Consumer Discretionar  vs.  KraneShares Trust

Vanguard Consumer

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Vanguard Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

KraneShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Consumer and KraneShares Trust

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

The idea behind Vanguard Consumer Discretionary and KraneShares Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.