Correlation Between Vanguard Sumer and Vanguard Energy

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Can any of the company-specific risk be diversified away by investing in both Vanguard Sumer and Vanguard Energy 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 Sumer and Vanguard Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Sumer Staples and Vanguard Energy Fund, you can compare the effects of market volatilities on Vanguard Sumer and Vanguard Energy 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 Sumer with a short position of Vanguard Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Sumer and Vanguard Energy.

Diversification Opportunities for Vanguard Sumer and Vanguard Energy

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Vanguard and Vanguard is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Sumer Staples and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy and Vanguard Sumer 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 Sumer Staples are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Vanguard Sumer i.e., Vanguard Sumer and Vanguard Energy go up and down completely randomly.

Pair Corralation between Vanguard Sumer and Vanguard Energy

Assuming the 90 days horizon Vanguard Sumer is expected to generate 1.22 times less return on investment than Vanguard Energy. But when comparing it to its historical volatility, Vanguard Sumer Staples is 1.13 times less risky than Vanguard Energy. It trades about 0.07 of its potential returns per unit of risk. Vanguard Energy Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,992  in Vanguard Energy Fund on September 6, 2024 and sell it today you would earn a total of  157.00  from holding Vanguard Energy Fund or generate 3.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.44%
ValuesDaily Returns

Vanguard Sumer Staples  vs.  Vanguard Energy Fund

 Performance 
       Timeline  
Vanguard Sumer Staples 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Sumer Staples are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Sumer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Energy 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Sumer and Vanguard Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Sumer and Vanguard Energy

The main advantage of trading using opposite Vanguard Sumer and Vanguard Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Sumer position performs unexpectedly, Vanguard Energy 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 Energy will offset losses from the drop in Vanguard Energy's long position.
The idea behind Vanguard Sumer Staples and Vanguard Energy Fund 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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