Correlation Between Vanguard Total and ProShares Large

Can any of the company-specific risk be diversified away by investing in both Vanguard Total and ProShares Large 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 ProShares Large 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 ProShares Large Cap, you can compare the effects of market volatilities on Vanguard Total and ProShares Large 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 ProShares Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and ProShares Large.

Diversification Opportunities for Vanguard Total and ProShares Large

0.86

Correlation Coefficient

Vanguard Total  ProShares Large

Very poor diversification

The 3 months correlation between Vanguard and ProShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and ProShares Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Large Cap 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 ProShares Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Large Cap has no effect on the direction of Vanguard Total i.e., Vanguard Total and ProShares Large go up and down completely randomly.

Pair Corralation between Vanguard Total and ProShares Large

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.98 times more return on investment than ProShares Large. However, Vanguard Total Stock is 1.02 times less risky than ProShares Large. It trades about 0.15 of its potential returns per unit of risk. ProShares Large Cap is currently generating about 0.13 per unit of risk. If you would invest  27,752  in Vanguard Total Stock on August 30, 2024 and sell it today you would earn a total of  2,068  from holding Vanguard Total Stock or generate 7.45% return on investment over 90 days.

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

Vanguard Total Stock  vs.  ProShares Large Cap

Vanguard Total Stock

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in December 2024.

ProShares Large Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Large Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, ProShares Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Total and ProShares Large

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

The idea behind Vanguard Total Stock and ProShares Large Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.