Can any of the company-specific risk be diversified away by investing in both Vanguard Wellesley and The Hartford 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 Wellesley and The Hartford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Wellesley Income and The Hartford Balanced, you can compare the effects of market volatilities on Vanguard Wellesley and The Hartford 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 Wellesley with a short position of The Hartford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Wellesley and The Hartford.
Diversification Opportunities for Vanguard Wellesley and The Hartford
The 3 months correlation between Vanguard and The is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Wellesley Income and The Hartford Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Balanced and Vanguard Wellesley 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 Wellesley Income are associated (or correlated) with The Hartford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Balanced has no effect on the direction of Vanguard Wellesley i.e., Vanguard Wellesley and The Hartford go up and down completely randomly.
Pair Corralation between Vanguard Wellesley and The Hartford
Assuming the 90 days horizon Vanguard Wellesley is expected to generate 1.4 times less return on investment than The Hartford. But when comparing it to its historical volatility, Vanguard Wellesley Income is 1.15 times less risky than The Hartford. It trades about 0.06 of its potential returns per unit of risk. The Hartford Balanced is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,439 in The Hartford Balanced on March 6, 2024 and sell it today you would earn a total of 31.00 from holding The Hartford Balanced or generate 2.15% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Wellesley Income are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Wellesley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Balanced are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Hartford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.