Correlation Between Vanguard Developed and Vela International

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

By analyzing existing cross correlation between Vanguard Developed Markets and Vela International, you can compare the effects of market volatilities on Vanguard Developed and Vela International 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 Developed with a short position of Vela International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Developed and Vela International.

Diversification Opportunities for Vanguard Developed and Vela International

0.86

Correlation Coefficient

Vanguard Developed  Vela International

Very poor diversification

The 3 months correlation between Vanguard and Vela is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Developed Markets and Vela International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela International and Vanguard Developed 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 Developed Markets are associated (or correlated) with Vela International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela International has no effect on the direction of Vanguard Developed i.e., Vanguard Developed and Vela International go up and down completely randomly.

Pair Corralation between Vanguard Developed and Vela International

Assuming the 90 days horizon Vanguard Developed Markets is expected to generate 1.13 times more return on investment than Vela International. However, Vanguard Developed is 1.13 times more volatile than Vela International. It trades about 0.05 of its potential returns per unit of risk. Vela International is currently generating about 0.05 per unit of risk. If you would invest  2,066  in Vanguard Developed Markets on September 3, 2024 and sell it today you would earn a total of  461.00  from holding Vanguard Developed Markets or generate 22.31% return on investment over 90 days.

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

Vanguard Developed Markets  vs.  Vela International

Vanguard Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Developed Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Developed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vela International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vela International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Vela International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Developed and Vela International

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

The idea behind Vanguard Developed Markets and Vela International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.