Correlation Between Vanguard STAR and Vanguard World

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

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

Diversification Opportunities for Vanguard STAR and Vanguard World

0.16

Correlation Coefficient

Vanguard STAR  Vanguard World

Average diversification

The 3 months correlation between Vanguard and Vanguard is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard STAR Funds and Vanguard World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard World and Vanguard STAR 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 STAR Funds are associated (or correlated) with Vanguard World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard World has no effect on the direction of Vanguard STAR i.e., Vanguard STAR and Vanguard World go up and down completely randomly.

Pair Corralation between Vanguard STAR and Vanguard World

Assuming the 90 days trading horizon Vanguard STAR is expected to generate 11.34 times less return on investment than Vanguard World. In addition to that, Vanguard STAR is 1.93 times more volatile than Vanguard World. It trades about 0.01 of its total potential returns per unit of risk. Vanguard World is currently generating about 0.19 per unit of volatility. If you would invest  408,841  in Vanguard World on September 13, 2024 and sell it today you would earn a total of  42,109  from holding Vanguard World or generate 10.3% return on investment over 90 days.

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

Vanguard STAR Funds  vs.  Vanguard World

Vanguard STAR Funds

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Vanguard World may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard STAR and Vanguard World

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

The idea behind Vanguard STAR Funds and Vanguard World 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.