Correlation Between Vanguard European and Six Circles

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

By analyzing existing cross correlation between Vanguard European Stock and Six Circles Managed, you can compare the effects of market volatilities on Vanguard European and Six Circles 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 European with a short position of Six Circles. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard European and Six Circles.

Diversification Opportunities for Vanguard European and Six Circles

1.0

Correlation Coefficient

Vanguard European  Six Circles

No risk reduction

The 3 months correlation between Vanguard and Six is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock and Six Circles Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Six Circles Managed and Vanguard European 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 European Stock are associated (or correlated) with Six Circles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Six Circles Managed has no effect on the direction of Vanguard European i.e., Vanguard European and Six Circles go up and down completely randomly.

Pair Corralation between Vanguard European and Six Circles

Assuming the 90 days horizon Vanguard European Stock is expected to under-perform the Six Circles. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard European Stock is 1.09 times less risky than Six Circles. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Six Circles Managed is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,417  in Six Circles Managed on September 5, 2024 and sell it today you would lose (49.00) from holding Six Circles Managed or give up 3.46% of portfolio value over 90 days.

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

Vanguard European Stock  vs.  Six Circles Managed

Vanguard European Stock

Risk-Adjusted Performance

0 of 100

Very Weak

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

Six Circles Managed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Six Circles Managed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Six Circles 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 European and Six Circles

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

The idea behind Vanguard European Stock and Six Circles Managed 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.