Correlation Between Vanguard Total and China Emerging

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

Diversification Opportunities for Vanguard Total and China Emerging

-0.26

Correlation Coefficient

Vanguard Total  China Emerging

Very good diversification

The 3 months correlation between Vanguard and China is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and China Emerging Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Emerging Leaders 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 China Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Emerging Leaders has no effect on the direction of Vanguard Total i.e., Vanguard Total and China Emerging go up and down completely randomly.

Pair Corralation between Vanguard Total and China Emerging

Assuming the 90 days horizon Vanguard Total Stock is expected to generate 1.9 times more return on investment than China Emerging. However, Vanguard Total is 1.9 times more volatile than China Emerging Leaders. It trades about 0.11 of its potential returns per unit of risk. China Emerging Leaders is currently generating about 0.04 per unit of risk. If you would invest  9,050  in Vanguard Total Stock on September 21, 2024 and sell it today you would earn a total of  5,057  from holding Vanguard Total Stock or generate 55.88% return on investment over 90 days.

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

Vanguard Total Stock  vs.  China Emerging Leaders

Vanguard Total Stock

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Emerging Leaders

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Emerging Leaders has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, China Emerging 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 China Emerging

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

The idea behind Vanguard Total Stock and China Emerging Leaders 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.