Correlation Between Vanguard Multifactor and SPDR Portfolio

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

By analyzing existing cross correlation between Vanguard Multifactor and SPDR Portfolio Aggregate, you can compare the effects of market volatilities on Vanguard Multifactor and SPDR Portfolio 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 Multifactor with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Multifactor and SPDR Portfolio.

Diversification Opportunities for Vanguard Multifactor and SPDR Portfolio

-0.47

Correlation Coefficient

Vanguard Multifactor  SPDR Portfolio

Very good diversification

The 3 months correlation between Vanguard and SPDR is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and SPDR Portfolio Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Aggregate and Vanguard Multifactor 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 Multifactor are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Aggregate has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and SPDR Portfolio

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 2.93 times more return on investment than SPDR Portfolio. However, Vanguard Multifactor is 2.93 times more volatile than SPDR Portfolio Aggregate. It trades about 0.08 of its potential returns per unit of risk. SPDR Portfolio Aggregate is currently generating about -0.13 per unit of risk. If you would invest  13,048  in Vanguard Multifactor on September 19, 2024 and sell it today you would earn a total of  601.00  from holding Vanguard Multifactor or generate 4.61% return on investment over 90 days.

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

Vanguard Multifactor  vs.  SPDR Portfolio Aggregate

Vanguard Multifactor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Portfolio Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SPDR Portfolio 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 Multifactor and SPDR Portfolio

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

The idea behind Vanguard Multifactor and SPDR Portfolio Aggregate 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.