Correlation Between Vanguard Mortgage and Vanguard FTSE

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

By analyzing existing cross correlation between Vanguard Mortgage Backed Securities and Vanguard FTSE Canadian, you can compare the effects of market volatilities on Vanguard Mortgage and Vanguard FTSE 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 Mortgage with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mortgage and Vanguard FTSE.

Diversification Opportunities for Vanguard Mortgage and Vanguard FTSE

0.68

Correlation Coefficient

Vanguard Mortgage  Vanguard FTSE

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mortgage Backed Secur and Vanguard FTSE Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Canadian and Vanguard Mortgage 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 Mortgage Backed Securities are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Canadian has no effect on the direction of Vanguard Mortgage i.e., Vanguard Mortgage and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Vanguard Mortgage and Vanguard FTSE

Given the investment horizon of 90 days Vanguard Mortgage is expected to generate 2.8 times less return on investment than Vanguard FTSE. But when comparing it to its historical volatility, Vanguard Mortgage Backed Securities is 3.64 times less risky than Vanguard FTSE. It trades about 0.23 of its potential returns per unit of risk. Vanguard FTSE Canadian is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,117  in Vanguard FTSE Canadian on July 5, 2024 and sell it today you would earn a total of  401.00  from holding Vanguard FTSE Canadian or generate 12.86% return on investment over 90 days.

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

Vanguard Mortgage Backed Secur  vs.  Vanguard FTSE Canadian

Vanguard Mortgage

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mortgage Backed Securities are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Vanguard Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard FTSE Canadian

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canadian are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Vanguard Mortgage and Vanguard FTSE

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

The idea behind Vanguard Mortgage Backed Securities and Vanguard FTSE Canadian 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.