Correlation Between Vanguard Mega and Vanguard Financials

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

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

Diversification Opportunities for Vanguard Mega and Vanguard Financials

0.96

Correlation Coefficient

Vanguard Mega  Vanguard Financials

Almost no diversification

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

Pair Corralation between Vanguard Mega and Vanguard Financials

Assuming the 90 days horizon Vanguard Mega is expected to generate 1.3 times less return on investment than Vanguard Financials. But when comparing it to its historical volatility, Vanguard Mega Cap is 1.31 times less risky than Vanguard Financials. It trades about 0.11 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,927  in Vanguard Financials Index on May 4, 2025 and sell it today you would earn a total of  355.00  from holding Vanguard Financials Index or generate 5.99% return on investment over 90 days.

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

Vanguard Mega Cap  vs.  Vanguard Financials Index

Vanguard Mega Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Vanguard Mega is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Financials Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Financials 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 Mega and Vanguard Financials

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

The idea behind Vanguard Mega Cap and Vanguard Financials 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.