Correlation Between Vanguard Consumer and Global X

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

By analyzing existing cross correlation between Vanguard Consumer Discretionary and Global X Lithium, you can compare the effects of market volatilities on Vanguard Consumer and Global X 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 Consumer with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Consumer and Global X.

Diversification Opportunities for Vanguard Consumer and Global X

0.65

Correlation Coefficient

Vanguard Consumer  Global X

Poor diversification

The 3 months correlation between Vanguard and Global is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Discretionar and Global X Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Lithium and Vanguard Consumer 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 Consumer Discretionary are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Lithium has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and Global X go up and down completely randomly.

Pair Corralation between Vanguard Consumer and Global X

Considering the 90-day investment horizon Vanguard Consumer is expected to generate 4.28 times less return on investment than Global X. But when comparing it to its historical volatility, Vanguard Consumer Discretionary is 2.04 times less risky than Global X. It trades about 0.04 of its potential returns per unit of risk. Global X Lithium is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,212  in Global X Lithium on February 20, 2024 and sell it today you would earn a total of  368.00  from holding Global X Lithium or generate 8.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Vanguard Consumer Discretionar  vs.  Global X Lithium

Vanguard Consumer

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Global X Lithium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Lithium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Vanguard Consumer and Global X

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

The idea behind Vanguard Consumer Discretionary and Global X Lithium 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.