Correlation Between VIX Securities and VN Index

Can any of the company-specific risk be diversified away by investing in both VIX Securities and VN Index 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 VIX Securities and VN Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VIX Securities JSC and VN Index, you can compare the effects of market volatilities on VIX Securities and VN Index 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 VIX Securities with a short position of VN Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of VIX Securities and VN Index.

Diversification Opportunities for VIX Securities and VN Index

0.87

Correlation Coefficient

VIX Securities  VN Index

Very poor diversification

The 3 months correlation between VIX and VNI is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding VIX Securities JSC and VN Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VN Index and VIX Securities 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 VIX Securities JSC are associated (or correlated) with VN Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VN Index has no effect on the direction of VIX Securities i.e., VIX Securities and VN Index go up and down completely randomly.

Pair Corralation between VIX Securities and VN Index

Assuming the 90 days trading horizon VIX Securities JSC is expected to generate 3.19 times more return on investment than VN Index. However, VIX Securities is 3.19 times more volatile than VN Index. It trades about 0.44 of its potential returns per unit of risk. VN Index is currently generating about 0.32 per unit of risk. If you would invest  1,185,714  in VIX Securities JSC on May 5, 2025 and sell it today you would earn a total of  1,444,286  from holding VIX Securities JSC or generate 121.81% return on investment over 90 days.

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

VIX Securities JSC  vs.  VN Index

Pair Trading with VIX Securities and VN Index

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

The idea behind VIX Securities JSC and VN Index 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.