Correlation Between Vanguard Target and Large Capitalization

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

By analyzing existing cross correlation between Vanguard Target Retirement and Large Capitalization Growth, you can compare the effects of market volatilities on Vanguard Target and Large Capitalization 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 Target with a short position of Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Target and Large Capitalization.

Diversification Opportunities for Vanguard Target and Large Capitalization

0.96

Correlation Coefficient

Vanguard Target  Large Capitalization

Almost no diversification

The 3 months correlation between VANGUARD and Large is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Target Retirement and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Vanguard Target 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 Target Retirement are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Vanguard Target i.e., Vanguard Target and Large Capitalization go up and down completely randomly.

Pair Corralation between Vanguard Target and Large Capitalization

Assuming the 90 days horizon Vanguard Target is expected to generate 1.5 times less return on investment than Large Capitalization. But when comparing it to its historical volatility, Vanguard Target Retirement is 1.8 times less risky than Large Capitalization. It trades about 0.26 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  524.00  in Large Capitalization Growth on May 22, 2025 and sell it today you would earn a total of  60.00  from holding Large Capitalization Growth or generate 11.45% return on investment over 90 days.

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

Vanguard Target Retirement  vs.  Large Capitalization Growth

Vanguard Target Reti

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Target Retirement are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Target may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Large Capitalization

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capitalization Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Large Capitalization may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Vanguard Target and Large Capitalization

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

The idea behind Vanguard Target Retirement and Large Capitalization Growth 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.