Correlation Between Vanguard Financials and New Economy
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and New Economy 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 Financials and New Economy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and New Economy Fund, you can compare the effects of market volatilities on Vanguard Financials and New Economy 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 Financials with a short position of New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and New Economy.
Diversification Opportunities for Vanguard Financials and New Economy
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and New is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund and Vanguard Financials 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 Financials Index are associated (or correlated) with New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and New Economy go up and down completely randomly.
Pair Corralation between Vanguard Financials and New Economy
Assuming the 90 days horizon Vanguard Financials is expected to generate 1.52 times less return on investment than New Economy. In addition to that, Vanguard Financials is 1.16 times more volatile than New Economy Fund. It trades about 0.06 of its total potential returns per unit of risk. New Economy Fund is currently generating about 0.1 per unit of volatility. If you would invest 4,092 in New Economy Fund on January 30, 2024 and sell it today you would earn a total of 1,475 from holding New Economy Fund or generate 36.05% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard Financials Index vs. New Economy Fund
Performance |
Timeline |
Vanguard Financials Index |
New Economy Fund |
Vanguard Financials and New Economy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard Financials and New Economy
The main advantage of trading using opposite Vanguard Financials and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.The idea behind Vanguard Financials Index and New Economy 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.New Economy vs. Europacific Growth Fund | New Economy vs. Growth Fund Of | New Economy vs. HUMANA INC | New Economy vs. Aquagold International |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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