Correlation Between Vanguard Energy and Energy Fund

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

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

Diversification Opportunities for Vanguard Energy and Energy Fund

0.9

Correlation Coefficient

Vanguard Energy  Energy Fund

Almost no diversification

The 3 months correlation between Vanguard and Energy is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and Energy Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fund Investor and Vanguard Energy 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 Energy Fund are associated (or correlated) with Energy Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fund Investor has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Energy Fund go up and down completely randomly.

Pair Corralation between Vanguard Energy and Energy Fund

Assuming the 90 days horizon Vanguard Energy Fund is expected to under-perform the Energy Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Energy Fund is 1.57 times less risky than Energy Fund. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Energy Fund Investor is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  27,308  in Energy Fund Investor on September 13, 2024 and sell it today you would lose (304.00) from holding Energy Fund Investor or give up 1.11% of portfolio value over 90 days.

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

Vanguard Energy Fund  vs.  Energy Fund Investor

Vanguard Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Vanguard Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Energy Fund Investor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Investor are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Energy Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Energy and Energy Fund

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

The idea behind Vanguard Energy Fund and Energy Fund Investor 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.