Correlation Between Vanguard Primecap and Vanguard Large-cap

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

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

Diversification Opportunities for Vanguard Primecap and Vanguard Large-cap

0.8

Correlation Coefficient

Vanguard Primecap  Vanguard Large-cap

Very poor diversification

The 3 months correlation between VANGUARD and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Primecap Fund and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap and Vanguard Primecap 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 Primecap Fund are associated (or correlated) with Vanguard Large-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of Vanguard Primecap i.e., Vanguard Primecap and Vanguard Large-cap go up and down completely randomly.

Pair Corralation between Vanguard Primecap and Vanguard Large-cap

Assuming the 90 days horizon Vanguard Primecap is expected to generate 2.24 times less return on investment than Vanguard Large-cap. In addition to that, Vanguard Primecap is 1.11 times more volatile than Vanguard Large Cap Index. It trades about 0.09 of its total potential returns per unit of risk. Vanguard Large Cap Index is currently generating about 0.22 per unit of volatility. If you would invest  52,232  in Vanguard Large Cap Index on September 5, 2024 and sell it today you would earn a total of  5,577  from holding Vanguard Large Cap Index or generate 10.68% return on investment over 90 days.

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

Vanguard Primecap Fund  vs.  Vanguard Large Cap Index

Vanguard Primecap

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Primecap Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Primecap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Large Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Large-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Primecap and Vanguard Large-cap

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

The idea behind Vanguard Primecap Fund and Vanguard Large Cap Index 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.