Correlation Between Vanguard 500 and Capital World
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Capital World 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 500 and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard 500 Index and Capital World Growth, you can compare the effects of market volatilities on Vanguard 500 and Capital World 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 500 with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Capital World.
Diversification Opportunities for Vanguard 500 and Capital World
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Vanguard and Capital is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Vanguard 500 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 500 Index are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Capital World go up and down completely randomly.
Pair Corralation between Vanguard 500 and Capital World
Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.01 times more return on investment than Capital World. However, Vanguard 500 is 1.01 times more volatile than Capital World Growth. It trades about 0.12 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.07 per unit of risk. If you would invest 34,442 in Vanguard 500 Index on September 24, 2024 and sell it today you would earn a total of 20,441 from holding Vanguard 500 Index or generate 59.35% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard 500 Index vs. Capital World Growth
Performance |
Timeline |
Vanguard 500 Index |
Capital World Growth |
Vanguard 500 and Capital World Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard 500 and Capital World
The main advantage of trading using opposite Vanguard 500 and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.Vanguard 500 vs. Vanguard International Growth | Vanguard 500 vs. Vanguard Wellington Fund | Vanguard 500 vs. Vanguard Windsor Ii |
Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual Fund |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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