Correlation Between Vanguard Dividend and FlexShares Quality

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

By analyzing existing cross correlation between Vanguard Dividend Appreciation and FlexShares Quality Large, you can compare the effects of market volatilities on Vanguard Dividend and FlexShares Quality 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 Dividend with a short position of FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Dividend and FlexShares Quality.

Diversification Opportunities for Vanguard Dividend and FlexShares Quality

0.92

Correlation Coefficient

Vanguard Dividend  FlexShares Quality

Almost no diversification

The 3 months correlation between Vanguard and FlexShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Dividend Appreciation and FlexShares Quality Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality Large and Vanguard Dividend 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 Dividend Appreciation are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality Large has no effect on the direction of Vanguard Dividend i.e., Vanguard Dividend and FlexShares Quality go up and down completely randomly.

Pair Corralation between Vanguard Dividend and FlexShares Quality

Considering the 90-day investment horizon Vanguard Dividend is expected to generate 1.29 times less return on investment than FlexShares Quality. But when comparing it to its historical volatility, Vanguard Dividend Appreciation is 1.22 times less risky than FlexShares Quality. It trades about 0.17 of its potential returns per unit of risk. FlexShares Quality Large is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,651  in FlexShares Quality Large on September 17, 2024 and sell it today you would earn a total of  2,174  from holding FlexShares Quality Large or generate 46.74% return on investment over 90 days.

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

Vanguard Dividend Appreciation  vs.  FlexShares Quality Large

Vanguard Dividend

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Dividend Appreciation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Vanguard Dividend is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

FlexShares Quality Large

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Large are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, FlexShares Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Dividend and FlexShares Quality

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

The idea behind Vanguard Dividend Appreciation and FlexShares Quality Large 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.