Correlation Between Vanguard Information and Technology Select

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

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

Diversification Opportunities for Vanguard Information and Technology Select

0.98

Correlation Coefficient

Vanguard Information  Technology Select

Almost no diversification

The 3 months correlation between Vanguard and Technology is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Information Technolog and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector and Vanguard Information 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 Information Technology are associated (or correlated) with Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of Vanguard Information i.e., Vanguard Information and Technology Select go up and down completely randomly.

Pair Corralation between Vanguard Information and Technology Select

Considering the 90-day investment horizon Vanguard Information Technology is expected to generate 0.97 times more return on investment than Technology Select. However, Vanguard Information Technology is 1.03 times less risky than Technology Select. It trades about 0.19 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.16 per unit of risk. If you would invest  54,666  in Vanguard Information Technology on September 4, 2024 and sell it today you would earn a total of  8,171  from holding Vanguard Information Technology or generate 14.95% return on investment over 90 days.

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

Vanguard Information Technolog  vs.  Technology Select Sector

Vanguard Information

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Information Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Vanguard Information unveiled solid returns over the last few months and may actually be approaching a breakup point.

Technology Select Sector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Technology Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Information and Technology Select

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

The idea behind Vanguard Information Technology and Technology Select Sector 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.