Correlation Between Vanguard Materials and VanEck Steel
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and VanEck Steel 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 Materials and VanEck Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Materials Index and VanEck Steel ETF, you can compare the effects of market volatilities on Vanguard Materials and VanEck Steel 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 Materials with a short position of VanEck Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and VanEck Steel.
Diversification Opportunities for Vanguard Materials and VanEck Steel
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and VanEck is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and VanEck Steel ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Steel ETF and Vanguard Materials 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 Materials Index are associated (or correlated) with VanEck Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Steel ETF has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and VanEck Steel go up and down completely randomly.
Pair Corralation between Vanguard Materials and VanEck Steel
Considering the 90-day investment horizon Vanguard Materials is expected to generate 1.43 times less return on investment than VanEck Steel. But when comparing it to its historical volatility, Vanguard Materials Index is 1.37 times less risky than VanEck Steel. It trades about 0.07 of its potential returns per unit of risk. VanEck Steel ETF is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 5,772 in VanEck Steel ETF on February 3, 2024 and sell it today you would earn a total of 1,330 from holding VanEck Steel ETF or generate 23.04% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.6% |
Values | Daily Returns |
Vanguard Materials Index vs. VanEck Steel ETF
Performance |
Timeline |
Vanguard Materials Index |
VanEck Steel ETF |
Vanguard Materials and VanEck Steel Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard Materials and VanEck Steel
The main advantage of trading using opposite Vanguard Materials and VanEck Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials position performs unexpectedly, VanEck Steel 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 VanEck Steel will offset losses from the drop in VanEck Steel's long position.Vanguard Materials vs. SPDR SP Oil | Vanguard Materials vs. SPDR SP Retail | Vanguard Materials vs. SPDR SP Homebuilders |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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