Correlation Between Vanguard Health and American Funds

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

By analyzing existing cross correlation between Vanguard Health Care and American Funds 2050, you can compare the effects of market volatilities on Vanguard Health and American Funds 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 Health with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Health and American Funds.

Diversification Opportunities for Vanguard Health and American Funds

-0.18

Correlation Coefficient

Vanguard Health  American Funds

Good diversification

The 3 months correlation between Vanguard and American is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and American Funds 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2050 and Vanguard Health 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 Health Care are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2050 has no effect on the direction of Vanguard Health i.e., Vanguard Health and American Funds go up and down completely randomly.

Pair Corralation between Vanguard Health and American Funds

Assuming the 90 days horizon Vanguard Health Care is expected to under-perform the American Funds. In addition to that, Vanguard Health is 2.12 times more volatile than American Funds 2050. It trades about -0.25 of its total potential returns per unit of risk. American Funds 2050 is currently generating about 0.02 per unit of volatility. If you would invest  2,167  in American Funds 2050 on September 26, 2024 and sell it today you would earn a total of  14.00  from holding American Funds 2050 or generate 0.65% return on investment over 90 days.

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

Vanguard Health Care  vs.  American Funds 2050

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

American Funds 2050

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2050 are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Health and American Funds

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

The idea behind Vanguard Health Care and American Funds 2050 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.