Correlation Between Vanguard Information and Specialized Technology

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

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

Diversification Opportunities for Vanguard Information and Specialized Technology

0.97

Correlation Coefficient

Vanguard Information  Specialized Technology

Almost no diversification

The 3 months correlation between Vanguard and Specialized is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Information Technolog and Specialized Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Specialized Technology and Vanguard Information 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 Information Technology are associated (or correlated) with Specialized Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Specialized Technology has no effect on the direction of Vanguard Information i.e., Vanguard Information and Specialized Technology go up and down completely randomly.

Pair Corralation between Vanguard Information and Specialized Technology

Assuming the 90 days horizon Vanguard Information Technology is expected to under-perform the Specialized Technology. In addition to that, Vanguard Information is 1.28 times more volatile than Specialized Technology Fund. It trades about -0.02 of its total potential returns per unit of risk. Specialized Technology Fund is currently generating about -0.02 per unit of volatility. If you would invest  1,219  in Specialized Technology Fund on February 3, 2025 and sell it today you would lose (59.00) from holding Specialized Technology Fund or give up 4.84% of portfolio value over 90 days.

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

Vanguard Information Technolog  vs.  Specialized Technology Fund

Vanguard Information

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Information Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Specialized Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Specialized Technology Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Specialized Technology 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 Information and Specialized Technology

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

The idea behind Vanguard Information Technology and Specialized Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.