Correlation Between Vanguard Growth and Simplify Volatility

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

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

Diversification Opportunities for Vanguard Growth and Simplify Volatility

0.91

Correlation Coefficient

Vanguard Growth  Simplify Volatility

Almost no diversification

The 3 months correlation between Vanguard and Simplify is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth Index and Simplify Volatility Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Volatility and Vanguard Growth 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 Growth Index are associated (or correlated) with Simplify Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Volatility has no effect on the direction of Vanguard Growth i.e., Vanguard Growth and Simplify Volatility go up and down completely randomly.

Pair Corralation between Vanguard Growth and Simplify Volatility

Considering the 90-day investment horizon Vanguard Growth Index is expected to generate 0.8 times more return on investment than Simplify Volatility. However, Vanguard Growth Index is 1.25 times less risky than Simplify Volatility. It trades about 0.08 of its potential returns per unit of risk. Simplify Volatility Premium is currently generating about 0.03 per unit of risk. If you would invest  25,790  in Vanguard Growth Index on February 13, 2025 and sell it today you would earn a total of  15,260  from holding Vanguard Growth Index or generate 59.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Vanguard Growth Index  vs.  Simplify Volatility Premium

Vanguard Growth Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Growth Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Simplify Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simplify Volatility Premium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Simplify Volatility is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard Growth and Simplify Volatility

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

The idea behind Vanguard Growth Index and Simplify Volatility Premium 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.