Correlation Between Vanguard Primecap and Vanguard California

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

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

Diversification Opportunities for Vanguard Primecap and Vanguard California

0.62

Correlation Coefficient

Vanguard Primecap  Vanguard California

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Primecap Fund and Vanguard California Intermedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard California and Vanguard Primecap 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 Primecap Fund are associated (or correlated) with Vanguard California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard California has no effect on the direction of Vanguard Primecap i.e., Vanguard Primecap and Vanguard California go up and down completely randomly.

Pair Corralation between Vanguard Primecap and Vanguard California

Assuming the 90 days horizon Vanguard Primecap Fund is expected to generate 7.14 times more return on investment than Vanguard California. However, Vanguard Primecap is 7.14 times more volatile than Vanguard California Intermediate Term. It trades about 0.48 of its potential returns per unit of risk. Vanguard California Intermediate Term is currently generating about 0.37 per unit of risk. If you would invest  14,393  in Vanguard Primecap Fund on February 19, 2025 and sell it today you would earn a total of  2,013  from holding Vanguard Primecap Fund or generate 13.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Vanguard Primecap Fund  vs.  Vanguard California Intermedia

Vanguard Primecap

Risk-Adjusted Performance

Very Weak

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

Vanguard California

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard California Intermediate Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Vanguard California 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 Primecap and Vanguard California

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

The idea behind Vanguard Primecap Fund and Vanguard California Intermediate Term 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.