Correlation Between Vanguard Financials and Growth Fund

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

By analyzing existing cross correlation between Vanguard Financials Index and Growth Fund Of, you can compare the effects of market volatilities on Vanguard Financials and Growth Fund 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 Financials with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Growth Fund.

Diversification Opportunities for Vanguard Financials and Growth Fund

0.89

Correlation Coefficient

Vanguard Financials  Growth Fund

Very poor diversification

The 3 months correlation between Vanguard and Growth is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Growth Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund and Vanguard Financials 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 Financials Index are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Growth Fund go up and down completely randomly.

Pair Corralation between Vanguard Financials and Growth Fund

Assuming the 90 days horizon Vanguard Financials is expected to generate 1.07 times less return on investment than Growth Fund. In addition to that, Vanguard Financials is 1.44 times more volatile than Growth Fund Of. It trades about 0.2 of its total potential returns per unit of risk. Growth Fund Of is currently generating about 0.3 per unit of volatility. If you would invest  6,264  in Growth Fund Of on September 7, 2024 and sell it today you would earn a total of  1,008  from holding Growth Fund Of or generate 16.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Financials Index  vs.  Growth Fund Of

Vanguard Financials Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Growth Fund

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund Of are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Growth Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and Growth Fund

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

The idea behind Vanguard Financials Index and Growth Fund Of 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.