Correlation Between Us Large and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Us Large and Vanguard 500 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 Us Large and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Large Pany and Vanguard 500 Index, you can compare the effects of market volatilities on Us Large and Vanguard 500 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 Us Large with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Large and Vanguard 500.
Diversification Opportunities for Us Large and Vanguard 500
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between DFUSX and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Us Large Pany and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Us 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 Us Large Pany are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Us Large i.e., Us Large and Vanguard 500 go up and down completely randomly.
Pair Corralation between Us Large and Vanguard 500
Assuming the 90 days horizon Us Large Pany is expected to under-perform the Vanguard 500. In addition to that, Us Large is 1.0 times more volatile than Vanguard 500 Index. It trades about -0.15 of its total potential returns per unit of risk. Vanguard 500 Index is currently generating about -0.15 per unit of volatility. If you would invest 48,008 in Vanguard 500 Index on January 26, 2024 and sell it today you would lose (1,180) from holding Vanguard 500 Index or give up 2.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Large Pany vs. Vanguard 500 Index
Performance |
| Timeline |
| Us Large Pany |
| Vanguard 500 Index |
Us Large and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Large and Vanguard 500
The main advantage of trading using opposite Us Large and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Large position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.The idea behind Us Large Pany and Vanguard 500 Index 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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