Correlation Between Vanguard Consumer and Vanguard Utilities

Can any of the company-specific risk be diversified away by investing in both Vanguard Consumer and Vanguard Utilities 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 Vanguard Utilities 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 Vanguard Utilities Index, you can compare the effects of market volatilities on Vanguard Consumer and Vanguard Utilities 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 Vanguard Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Consumer and Vanguard Utilities.

Diversification Opportunities for Vanguard Consumer and Vanguard Utilities

0.58

Correlation Coefficient

Vanguard Consumer  Vanguard Utilities

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index 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 Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and Vanguard Utilities go up and down completely randomly.

Pair Corralation between Vanguard Consumer and Vanguard Utilities

Considering the 90-day investment horizon Vanguard Consumer Discretionary is expected to generate 1.15 times more return on investment than Vanguard Utilities. However, Vanguard Consumer is 1.15 times more volatile than Vanguard Utilities Index. It trades about 0.22 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.15 per unit of risk. If you would invest  31,976  in Vanguard Consumer Discretionary on August 30, 2024 and sell it today you would earn a total of  5,275  from holding Vanguard Consumer Discretionary or generate 16.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Vanguard Consumer Discretionar  vs.  Vanguard Utilities Index

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.

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Vanguard Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Consumer and Vanguard Utilities

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

The idea behind Vanguard Consumer Discretionary and Vanguard Utilities Index 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.