Correlation Between Large Cap and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Large Cap and Vanguard Total 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 Large Cap and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Equity and Vanguard Total Stock, you can compare the effects of market volatilities on Large Cap and Vanguard Total 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 Large Cap with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Vanguard Total.
Diversification Opportunities for Large Cap and Vanguard Total
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Large and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and Large Cap 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 Large Cap Equity are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Large Cap i.e., Large Cap and Vanguard Total go up and down completely randomly.
Pair Corralation between Large Cap and Vanguard Total
Assuming the 90 days horizon Large Cap Equity is expected to generate 0.95 times more return on investment than Vanguard Total. However, Large Cap Equity is 1.05 times less risky than Vanguard Total. It trades about -0.28 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about -0.31 per unit of risk. If you would invest 2,393 in Large Cap Equity on January 20, 2024 and sell it today you would lose (95.00) from holding Large Cap Equity or give up 3.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Equity vs. Vanguard Total Stock
Performance |
| Timeline |
| Large Cap Equity |
| Vanguard Total Stock |
Large Cap and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Vanguard Total
The main advantage of trading using opposite Large Cap and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total's long position.| Large Cap vs. Emerging Markets Equity | Large Cap vs. Global Fixed Income | Large Cap vs. Global Fixed Income | Large Cap vs. Global Fixed Income |
| Vanguard Total vs. Vanguard Materials Index | Vanguard Total vs. Vanguard Limited Term Tax Exempt | Vanguard Total vs. Vanguard Limited Term Tax Exempt | Vanguard Total vs. Vanguard Global Minimum |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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