Correlation Between Vanguard Diversified and Vanguard Lifestrategy

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

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

Diversification Opportunities for Vanguard Diversified and Vanguard Lifestrategy

-0.21

Correlation Coefficient

Vanguard Diversified  Vanguard Lifestrategy

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Diversified Equity and Vanguard Lifestrategy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Lifestrategy and Vanguard Diversified 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 Diversified Equity are associated (or correlated) with Vanguard Lifestrategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Lifestrategy has no effect on the direction of Vanguard Diversified i.e., Vanguard Diversified and Vanguard Lifestrategy go up and down completely randomly.

Pair Corralation between Vanguard Diversified and Vanguard Lifestrategy

Assuming the 90 days horizon Vanguard Diversified Equity is expected to generate 3.04 times more return on investment than Vanguard Lifestrategy. However, Vanguard Diversified is 3.04 times more volatile than Vanguard Lifestrategy Income. It trades about 0.2 of its potential returns per unit of risk. Vanguard Lifestrategy Income is currently generating about 0.08 per unit of risk. If you would invest  4,979  in Vanguard Diversified Equity on September 3, 2024 and sell it today you would earn a total of  509.00  from holding Vanguard Diversified Equity or generate 10.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard Diversified Equity  vs.  Vanguard Lifestrategy Income

Vanguard Diversified

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Diversified Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Lifestrategy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Lifestrategy Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Lifestrategy 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 Diversified and Vanguard Lifestrategy

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

The idea behind Vanguard Diversified Equity and Vanguard Lifestrategy Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.