Correlation Between Vanguard Total and Health Care

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Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Health Care 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 Total and Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Bond and Health Care Select, you can compare the effects of market volatilities on Vanguard Total and Health Care 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 Total with a short position of Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Health Care.

Diversification Opportunities for Vanguard Total and Health Care

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Vanguard and Health is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select and Vanguard Total 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 Total Bond are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Vanguard Total i.e., Vanguard Total and Health Care go up and down completely randomly.

Pair Corralation between Vanguard Total and Health Care

Considering the 90-day investment horizon Vanguard Total is expected to generate 9.27 times less return on investment than Health Care. But when comparing it to its historical volatility, Vanguard Total Bond is 1.57 times less risky than Health Care. It trades about 0.01 of its potential returns per unit of risk. Health Care Select is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12,879  in Health Care Select on December 29, 2023 and sell it today you would earn a total of  1,892  from holding Health Care Select or generate 14.69% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Vanguard Total Bond  vs.  Health Care Select

 Performance 
       Timeline  
Vanguard Total Bond 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
Health Care Select 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Health Care Select are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Health Care may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Vanguard Total and Health Care Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Total and Health Care

The main advantage of trading using opposite Vanguard Total and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.
The idea behind Vanguard Total Bond and Health Care Select 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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