Correlation Between Vanguard Extended and Federated Hermes

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

By analyzing existing cross correlation between Vanguard Extended Market and Federated Hermes Inflation, you can compare the effects of market volatilities on Vanguard Extended and Federated Hermes 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 Extended with a short position of Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Federated Hermes.

Diversification Opportunities for Vanguard Extended and Federated Hermes

-0.62

Correlation Coefficient

Vanguard Extended  Federated Hermes

Excellent diversification

The 3 months correlation between Vanguard and Federated is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Federated Hermes Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Inf and Vanguard Extended 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 Extended Market are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Inf has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Federated Hermes go up and down completely randomly.

Pair Corralation between Vanguard Extended and Federated Hermes

Assuming the 90 days horizon Vanguard Extended Market is expected to generate 3.77 times more return on investment than Federated Hermes. However, Vanguard Extended is 3.77 times more volatile than Federated Hermes Inflation. It trades about 0.09 of its potential returns per unit of risk. Federated Hermes Inflation is currently generating about 0.04 per unit of risk. If you would invest  12,166  in Vanguard Extended Market on September 13, 2024 and sell it today you would earn a total of  3,281  from holding Vanguard Extended Market or generate 26.97% return on investment over 90 days.

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

Vanguard Extended Market  vs.  Federated Hermes Inflation

Vanguard Extended Market

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Vanguard Extended showed solid returns over the last few months and may actually be approaching a breakup point.

Federated Hermes Inf

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Extended and Federated Hermes

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

The idea behind Vanguard Extended Market and Federated Hermes Inflation 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.