Correlation Between Vanguard Utilities and Vanguard Consumer

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

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

Diversification Opportunities for Vanguard Utilities and Vanguard Consumer

0.32

Correlation Coefficient

Vanguard Utilities  Vanguard Consumer

Weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and Vanguard Sumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sumer Staples and Vanguard Utilities 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 Utilities Index are associated (or correlated) with Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sumer Staples has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Vanguard Utilities and Vanguard Consumer

Assuming the 90 days horizon Vanguard Utilities Index is expected to generate 1.71 times more return on investment than Vanguard Consumer. However, Vanguard Utilities is 1.71 times more volatile than Vanguard Sumer Staples. It trades about 0.15 of its potential returns per unit of risk. Vanguard Sumer Staples is currently generating about 0.08 per unit of risk. If you would invest  8,204  in Vanguard Utilities Index on September 2, 2024 and sell it today you would earn a total of  773.00  from holding Vanguard Utilities Index or generate 9.42% return on investment over 90 days.

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

Vanguard Utilities Index  vs.  Vanguard Sumer Staples

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

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

Vanguard Sumer Staples

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Sumer Staples are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Utilities and Vanguard Consumer

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

The idea behind Vanguard Utilities Index and Vanguard Sumer Staples 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.