Correlation Between Income Stock and Vanguard Value

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

By analyzing existing cross correlation between Income Stock Fund and Vanguard Value Index, you can compare the effects of market volatilities on Income Stock and Vanguard Value 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 Income Stock with a short position of Vanguard Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Stock and Vanguard Value.

Diversification Opportunities for Income Stock and Vanguard Value

0.93

Correlation Coefficient

Income Stock  Vanguard Value

Almost no diversification

The 3 months correlation between Income and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Income Stock Fund and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index and Income Stock 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 Income Stock Fund are associated (or correlated) with Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Income Stock i.e., Income Stock and Vanguard Value go up and down completely randomly.

Pair Corralation between Income Stock and Vanguard Value

Assuming the 90 days horizon Income Stock Fund is expected to under-perform the Vanguard Value. In addition to that, Income Stock is 1.1 times more volatile than Vanguard Value Index. It trades about -0.15 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about -0.13 per unit of volatility. If you would invest  6,942  in Vanguard Value Index on September 14, 2024 and sell it today you would lose (96.00) from holding Vanguard Value Index or give up 1.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Income Stock Fund  vs.  Vanguard Value Index

Income Stock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Income Stock Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Value Index

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Income Stock and Vanguard Value

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

The idea behind Income Stock Fund and Vanguard Value Index 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.