Can any of the company-specific risk be diversified away by investing in both Vanguard Explorer and Vanguard Primecap 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 Explorer and Vanguard Primecap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Explorer Fund and Vanguard Primecap Fund, you can compare the effects of market volatilities on Vanguard Explorer and Vanguard Primecap 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 Explorer with a short position of Vanguard Primecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Explorer and Vanguard Primecap.
Diversification Opportunities for Vanguard Explorer and Vanguard Primecap
The 3 months correlation between Vanguard and Vanguard is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Explorer Fund and Vanguard Primecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Primecap and Vanguard Explorer 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 Explorer Fund are associated (or correlated) with Vanguard Primecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Primecap has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Vanguard Primecap go up and down completely randomly.
Pair Corralation between Vanguard Explorer and Vanguard Primecap
Assuming the 90 days horizon Vanguard Explorer is expected to generate 13.96 times less return on investment than Vanguard Primecap. In addition to that, Vanguard Explorer is 1.31 times more volatile than Vanguard Primecap Fund. It trades about 0.01 of its total potential returns per unit of risk. Vanguard Primecap Fund is currently generating about 0.21 per unit of volatility. If you would invest 16,353 in Vanguard Primecap Fund on March 6, 2024 and sell it today you would earn a total of 360.00 from holding Vanguard Primecap Fund or generate 2.2% return on investment over 90 days.
Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Explorer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Primecap Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Vanguard Primecap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.