Correlation Between Vanguard Total and Bright Rock

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

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

Diversification Opportunities for Vanguard Total and Bright Rock

0.92

Correlation Coefficient

Vanguard Total  Bright Rock

Almost no diversification

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

Pair Corralation between Vanguard Total and Bright Rock

Assuming the 90 days horizon Vanguard Total Stock is expected to under-perform the Bright Rock. In addition to that, Vanguard Total is 1.29 times more volatile than Bright Rock Quality. It trades about -0.19 of its total potential returns per unit of risk. Bright Rock Quality is currently generating about -0.14 per unit of volatility. If you would invest  2,286  in Bright Rock Quality on January 28, 2024 and sell it today you would lose (42.00) from holding Bright Rock Quality or give up 1.84% of portfolio value over 90 days.

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

Vanguard Total Stock  vs.  Bright Rock Quality

Vanguard Total Stock

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Vanguard Total is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bright Rock Quality

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Rock Quality are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Bright Rock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and Bright Rock

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

The idea behind Vanguard Total Stock and Bright Rock Quality 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.