Correlation Between American Balanced and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both American Balanced and Vanguard Total 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 American Balanced and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced and Vanguard Total International, you can compare the effects of market volatilities on American Balanced and Vanguard Total 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 American Balanced with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Vanguard Total.
Diversification Opportunities for American Balanced and Vanguard Total
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Vanguard Total International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Inter and American Balanced 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 American Balanced are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Inter has no effect on the direction of American Balanced i.e., American Balanced and Vanguard Total go up and down completely randomly.
Pair Corralation between American Balanced and Vanguard Total
Assuming the 90 days horizon American Balanced is expected to generate 1.2 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, American Balanced is 1.39 times less risky than Vanguard Total. It trades about 0.06 of its potential returns per unit of risk. Vanguard Total International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 10,288 in Vanguard Total International on January 25, 2024 and sell it today you would earn a total of 2,392 from holding Vanguard Total International or generate 23.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
American Balanced vs. Vanguard Total International
Performance |
Timeline |
American Balanced |
Vanguard Total Inter |
American Balanced and Vanguard Total Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with American Balanced and Vanguard Total
The main advantage of trading using opposite American Balanced and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total's long position.American Balanced vs. Fidelity Strategic Dividend | American Balanced vs. HUMANA INC | American Balanced vs. Aquagold International | American Balanced vs. Morningstar Unconstrained Allocation |
Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Developed Markets | Vanguard Total vs. Vanguard Developed Markets | Vanguard Total vs. Fidelity International Index |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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