Correlation Between Vanguard Growth and SOFR

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

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

Diversification Opportunities for Vanguard Growth and SOFR

0.94

Correlation Coefficient

Vanguard Growth  SOFR

Almost no diversification

The 3 months correlation between Vanguard and SOFR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth Index and SOFR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOFR and Vanguard Growth 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 Growth Index are associated (or correlated) with SOFR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOFR has no effect on the direction of Vanguard Growth i.e., Vanguard Growth and SOFR go up and down completely randomly.

Pair Corralation between Vanguard Growth and SOFR

Considering the 90-day investment horizon Vanguard Growth Index is expected to generate 29.14 times more return on investment than SOFR. However, Vanguard Growth is 29.14 times more volatile than SOFR. It trades about 0.16 of its potential returns per unit of risk. SOFR is currently generating about 0.49 per unit of risk. If you would invest  38,806  in Vanguard Growth Index on September 23, 2024 and sell it today you would earn a total of  2,972  from holding Vanguard Growth Index or generate 7.66% return on investment over 90 days.

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

Vanguard Growth Index  vs.  SOFR

Vanguard Growth Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard Growth and SOFR

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

The idea behind Vanguard Growth Index and SOFR 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.