Correlation Between Vanguard Utilities and Vanguard Energy
Can any of the company-specific risk be diversified away by investing in both Vanguard Utilities and Vanguard Energy 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 Energy 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 Energy Fund, you can compare the effects of market volatilities on Vanguard Utilities and Vanguard Energy 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 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Utilities and Vanguard Energy.
Diversification Opportunities for Vanguard Utilities and Vanguard Energy
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and Vanguard Energy go up and down completely randomly.
Pair Corralation between Vanguard Utilities and Vanguard Energy
Assuming the 90 days horizon Vanguard Utilities Index is expected to generate 1.53 times more return on investment than Vanguard Energy. However, Vanguard Utilities is 1.53 times more volatile than Vanguard Energy Fund. It trades about 0.14 of its potential returns per unit of risk. Vanguard Energy Fund is currently generating about 0.05 per unit of risk. If you would invest 8,479 in Vanguard Utilities Index on September 6, 2024 and sell it today you would earn a total of 244.00 from holding Vanguard Utilities Index or generate 2.88% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard Utilities Index vs. Vanguard Energy Fund
Performance |
Timeline |
Vanguard Utilities Index |
Vanguard Energy |
Vanguard Utilities and Vanguard Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard Utilities and Vanguard Energy
The main advantage of trading using opposite Vanguard Utilities and Vanguard Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Utilities position performs unexpectedly, Vanguard Energy 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 Energy will offset losses from the drop in Vanguard Energy's long position.Vanguard Utilities vs. Vanguard Sumer Staples | Vanguard Utilities vs. Vanguard Financials Index | Vanguard Utilities vs. Vanguard Energy Index | Vanguard Utilities vs. Vanguard Telecommunication Services |
Vanguard Energy vs. Vanguard Global Capital | Vanguard Energy vs. Vanguard Health Care | Vanguard Energy vs. Vanguard Reit Index | Vanguard Energy vs. Vanguard Emerging Markets |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
Other Complementary Tools
Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
Performance Analysis Check effects of mean-variance optimization against your current asset allocation |