Correlation Between WBI Power and Vanguard Value

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

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

Diversification Opportunities for WBI Power and Vanguard Value

0.92

Correlation Coefficient

WBI Power  Vanguard Value

Almost no diversification

The 3 months correlation between WBI and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding WBI Power Factor and Vanguard Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Factor and WBI Power 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 WBI Power Factor are associated (or correlated) with Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Factor has no effect on the direction of WBI Power i.e., WBI Power and Vanguard Value go up and down completely randomly.

Pair Corralation between WBI Power and Vanguard Value

Given the investment horizon of 90 days WBI Power is expected to generate 1.11 times less return on investment than Vanguard Value. But when comparing it to its historical volatility, WBI Power Factor is 1.28 times less risky than Vanguard Value. It trades about 0.1 of its potential returns per unit of risk. Vanguard Value Factor is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,048  in Vanguard Value Factor on September 15, 2024 and sell it today you would earn a total of  1,352  from holding Vanguard Value Factor or generate 12.24% return on investment over 90 days.

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

WBI Power Factor  vs.  Vanguard Value Factor

WBI Power Factor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WBI Power Factor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, WBI Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Value Factor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with WBI Power and Vanguard Value

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

The idea behind WBI Power Factor and Vanguard Value Factor 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.