Correlation Between Vanguard Total and Large Cap

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

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

Diversification Opportunities for Vanguard Total and Large Cap

0.87

Correlation Coefficient

Vanguard Total  Large Cap

Very poor diversification

The 3 months correlation between Vanguard and Large is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Large Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Fund and Vanguard Total 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 Total Stock are associated (or correlated) with 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 Large Cap Fund has no effect on the direction of Vanguard Total i.e., Vanguard Total and Large Cap go up and down completely randomly.

Pair Corralation between Vanguard Total and Large Cap

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 1.05 times more return on investment than Large Cap. However, Vanguard Total is 1.05 times more volatile than Large Cap Fund. It trades about 0.22 of its potential returns per unit of risk. Large Cap Fund is currently generating about 0.14 per unit of risk. If you would invest  24,793  in Vanguard Total Stock on September 1, 2024 and sell it today you would earn a total of  2,579  from holding Vanguard Total Stock or generate 10.4% return on investment over 90 days.

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

Vanguard Total Stock  vs.  Large Cap Fund

Vanguard Total Stock

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock 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 Total may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Large Cap Fund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Large Cap 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 Total and Large Cap

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

The idea behind Vanguard Total Stock and Large Cap Fund 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.