Correlation Between Vanguard Large and Democratic Large

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

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

Diversification Opportunities for Vanguard Large and Democratic Large

0.96

Correlation Coefficient

Vanguard Large  Democratic Large

Almost no diversification

The 3 months correlation between Vanguard and Democratic is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Democratic Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Democratic Large Cap and Vanguard Large 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 Large Cap Index are associated (or correlated) with Democratic Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Democratic Large Cap has no effect on the direction of Vanguard Large i.e., Vanguard Large and Democratic Large go up and down completely randomly.

Pair Corralation between Vanguard Large and Democratic Large

Allowing for the 90-day total investment horizon Vanguard Large is expected to generate 1.53 times less return on investment than Democratic Large. But when comparing it to its historical volatility, Vanguard Large Cap Index is 1.37 times less risky than Democratic Large. It trades about 0.21 of its potential returns per unit of risk. Democratic Large Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,670  in Democratic Large Cap on September 9, 2024 and sell it today you would earn a total of  116.00  from holding Democratic Large Cap or generate 3.16% return on investment over 90 days.

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

Vanguard Large Cap Index  vs.  Democratic Large Cap

Vanguard Large Cap

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Democratic Large Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Democratic Large Cap are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Democratic Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Large and Democratic Large

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

The idea behind Vanguard Large Cap Index and Democratic Large Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.