Correlation Between Vanguard 500 and Moderately Conservative

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Moderately Conservative 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 500 and Moderately Conservative into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard 500 Index and Moderately Servative Balanced, you can compare the effects of market volatilities on Vanguard 500 and Moderately Conservative 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 500 with a short position of Moderately Conservative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Moderately Conservative.

Diversification Opportunities for Vanguard 500 and Moderately Conservative

0.98

Correlation Coefficient

Vanguard 500  Moderately Conservative

Almost no diversification

The 3 months correlation between Vanguard and MODERATELY is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Moderately Servative Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Conservative and Vanguard 500 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 500 Index are associated (or correlated) with Moderately Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Conservative has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Moderately Conservative go up and down completely randomly.

Pair Corralation between Vanguard 500 and Moderately Conservative

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 1.58 times more return on investment than Moderately Conservative. However, Vanguard 500 is 1.58 times more volatile than Moderately Servative Balanced. It trades about 0.17 of its potential returns per unit of risk. Moderately Servative Balanced is currently generating about 0.18 per unit of risk. If you would invest  27,068  in Vanguard 500 Index on August 15, 2024 and sell it today you would earn a total of  2,240  from holding Vanguard 500 Index or generate 8.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard 500 Index  vs.  Moderately Servative Balanced

Vanguard 500 Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Moderately Conservative

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderately Conservative 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 500 and Moderately Conservative

The main advantage of trading using opposite Vanguard 500 and Moderately Conservative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Moderately Conservative 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 Moderately Conservative will offset losses from the drop in Moderately Conservative's long position.

The idea behind Vanguard 500 Index and Moderately Servative Balanced 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.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.