Correlation Between Vanguard Total and Vanguard FTSE

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

Diversification Opportunities for Vanguard Total and Vanguard FTSE

-0.53

Correlation Coefficient

Vanguard Total  Vanguard FTSE

Excellent diversification

The 3 months correlation between Vanguard and Vanguard is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of Vanguard Total i.e., Vanguard Total and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Vanguard Total and Vanguard FTSE

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.97 times more return on investment than Vanguard FTSE. However, Vanguard Total Stock is 1.03 times less risky than Vanguard FTSE. It trades about 0.15 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about -0.09 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Vanguard Total Stock  vs.  Vanguard FTSE Developed

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.

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Vanguard FTSE

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

The idea behind Vanguard Total Stock and Vanguard FTSE Developed 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.