Correlation Between Vanguard Value and Thompson Largecap

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

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

Diversification Opportunities for Vanguard Value and Thompson Largecap

0.95

Correlation Coefficient

Vanguard Value  Thompson Largecap

Almost no diversification

The 3 months correlation between Vanguard and Thompson is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Thompson Largecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thompson Largecap and Vanguard Value 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 Value Index are associated (or correlated) with Thompson Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thompson Largecap has no effect on the direction of Vanguard Value i.e., Vanguard Value and Thompson Largecap go up and down completely randomly.

Pair Corralation between Vanguard Value and Thompson Largecap

Assuming the 90 days horizon Vanguard Value Index is expected to generate 0.72 times more return on investment than Thompson Largecap. However, Vanguard Value Index is 1.39 times less risky than Thompson Largecap. It trades about -0.21 of its potential returns per unit of risk. Thompson Largecap Fund is currently generating about -0.17 per unit of risk. If you would invest  6,329  in Vanguard Value Index on January 29, 2024 and sell it today you would lose (170.00) from holding Vanguard Value Index or give up 2.69% of portfolio value over 90 days.

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

Vanguard Value Index  vs.  Thompson Largecap Fund

Vanguard Value Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly 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.

Thompson Largecap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Thompson Largecap Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Thompson Largecap 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 Value and Thompson Largecap

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

The idea behind Vanguard Value Index and Thompson Largecap Fund 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.