Correlation Between Vanguard FTSE and Global X

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

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

Diversification Opportunities for Vanguard FTSE and Global X

0.95

Correlation Coefficient

Vanguard FTSE  Global X

Almost no diversification

The 3 months correlation between Vanguard and Global is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and Global X Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Europe and Vanguard FTSE 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 FTSE Developed are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Europe has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Global X go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Global X

Assuming the 90 days horizon Vanguard FTSE Developed is expected to generate 0.86 times more return on investment than Global X. However, Vanguard FTSE Developed is 1.17 times less risky than Global X. It trades about 0.07 of its potential returns per unit of risk. Global X Europe is currently generating about 0.05 per unit of risk. If you would invest  3,168  in Vanguard FTSE Developed on September 4, 2024 and sell it today you would earn a total of  406.00  from holding Vanguard FTSE Developed or generate 12.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard FTSE Developed  vs.  Global X Europe

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Global X is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and Global X

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

The idea behind Vanguard FTSE Developed and Global X Europe 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.