Correlation Between Vanguard Value and Largecap Value

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

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

Diversification Opportunities for Vanguard Value and Largecap Value

1.0

Correlation Coefficient

Vanguard Value  Largecap Value

No risk reduction

The 3 months correlation between Vanguard and Largecap is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value and Vanguard Value 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 Value Index are associated (or correlated) with Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Vanguard Value i.e., Vanguard Value and Largecap Value go up and down completely randomly.

Pair Corralation between Vanguard Value and Largecap Value

Assuming the 90 days horizon Vanguard Value is expected to generate 1.13 times less return on investment than Largecap Value. But when comparing it to its historical volatility, Vanguard Value Index is 1.04 times less risky than Largecap Value. It trades about 0.15 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,864  in Largecap Value Fund on May 2, 2025 and sell it today you would earn a total of  137.00  from holding Largecap Value Fund or generate 7.35% return on investment over 90 days.

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

Vanguard Value Index  vs.  Largecap Value Fund

Vanguard Value Index

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Largecap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Value Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Largecap Value may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Vanguard Value and Largecap Value

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

The idea behind Vanguard Value Index and Largecap Value Fund 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.