Correlation Between Washington Mutual and Vanguard Institutional
Can any of the company-specific risk be diversified away by investing in both Washington Mutual and Vanguard Institutional 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 Washington Mutual and Vanguard Institutional into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Washington Mutual Investors and Vanguard Institutional Index, you can compare the effects of market volatilities on Washington Mutual and Vanguard Institutional 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 Washington Mutual with a short position of Vanguard Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Washington Mutual and Vanguard Institutional.
Diversification Opportunities for Washington Mutual and Vanguard Institutional
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Washington and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Washington Mutual Investors and Vanguard Institutional Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Institutional and Washington Mutual 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 Washington Mutual Investors are associated (or correlated) with Vanguard Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Institutional has no effect on the direction of Washington Mutual i.e., Washington Mutual and Vanguard Institutional go up and down completely randomly.
Pair Corralation between Washington Mutual and Vanguard Institutional
Assuming the 90 days horizon Washington Mutual Investors is expected to generate 0.9 times more return on investment than Vanguard Institutional. However, Washington Mutual Investors is 1.11 times less risky than Vanguard Institutional. It trades about -0.14 of its potential returns per unit of risk. Vanguard Institutional Index is currently generating about -0.16 per unit of risk. If you would invest 6,095 in Washington Mutual Investors on January 25, 2024 and sell it today you would lose (130.00) from holding Washington Mutual Investors or give up 2.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Washington Mutual Investors vs. Vanguard Institutional Index
Performance |
| Timeline |
| Washington Mutual |
| Vanguard Institutional |
Washington Mutual and Vanguard Institutional Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Washington Mutual and Vanguard Institutional
The main advantage of trading using opposite Washington Mutual and Vanguard Institutional positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Mutual position performs unexpectedly, Vanguard Institutional 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 Institutional will offset losses from the drop in Vanguard Institutional's long position.The idea behind Washington Mutual Investors and Vanguard Institutional 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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