Can any of the company-specific risk be diversified away by investing in both Vanguard Total and American Balanced 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 Total and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Stock and American Balanced, you can compare the effects of market volatilities on Vanguard Total and American Balanced 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 Total with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and American Balanced.
Diversification Opportunities for Vanguard Total and American Balanced
The 3 months correlation between Vanguard and American is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and American Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Vanguard Total 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 Total Stock are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Vanguard Total i.e., Vanguard Total and American Balanced go up and down completely randomly.
Pair Corralation between Vanguard Total and American Balanced
Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 1.37 times more return on investment than American Balanced. However, Vanguard Total is 1.37 times more volatile than American Balanced. It trades about 0.05 of its potential returns per unit of risk. American Balanced is currently generating about 0.02 per unit of risk. If you would invest 25,718 in Vanguard Total Stock on March 6, 2024 and sell it today you would earn a total of 334.00 from holding Vanguard Total Stock or generate 1.3% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.
Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, American Balanced is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.