Correlation Between Vanguard Minimum and Vanguard Quality

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

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

Diversification Opportunities for Vanguard Minimum and Vanguard Quality

0.95

Correlation Coefficient

Vanguard Minimum  Vanguard Quality

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Minimum Volatility and Vanguard Quality Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Quality Factor and Vanguard Minimum 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 Minimum Volatility are associated (or correlated) with Vanguard Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Quality Factor has no effect on the direction of Vanguard Minimum i.e., Vanguard Minimum and Vanguard Quality go up and down completely randomly.

Pair Corralation between Vanguard Minimum and Vanguard Quality

Given the investment horizon of 90 days Vanguard Minimum is expected to generate 1.9 times less return on investment than Vanguard Quality. But when comparing it to its historical volatility, Vanguard Minimum Volatility is 1.49 times less risky than Vanguard Quality. It trades about 0.13 of its potential returns per unit of risk. Vanguard Quality Factor is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  13,707  in Vanguard Quality Factor on September 12, 2024 and sell it today you would earn a total of  1,233  from holding Vanguard Quality Factor or generate 9.0% return on investment over 90 days.

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

Vanguard Minimum Volatility  vs.  Vanguard Quality Factor

Vanguard Minimum Vol

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Minimum Volatility are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable primary indicators, Vanguard Minimum is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard Quality Factor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Quality Factor are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Minimum and Vanguard Quality

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

The idea behind Vanguard Minimum Volatility and Vanguard Quality Factor 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.