Correlation Between Vanguard European and American Funds
Can any of the company-specific risk be diversified away by investing in both Vanguard European and American Funds 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 European and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard European Stock and American Funds 2030, you can compare the effects of market volatilities on Vanguard European and American Funds 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 European with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard European and American Funds.
Diversification Opportunities for Vanguard European and American Funds
0.98 | Correlation Coefficient |
Almost no diversification
The 1 month correlation between Vanguard and American is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock and American Funds 2030 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2030 and Vanguard European 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 European Stock are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2030 has no effect on the direction of Vanguard European i.e., Vanguard European and American Funds go up and down completely randomly.
Pair Corralation between Vanguard European and American Funds
Assuming the 90 days horizon Vanguard European Stock is expected to under-perform the American Funds. In addition to that, Vanguard European is 1.33 times more volatile than American Funds 2030. It trades about -0.32 of its total potential returns per unit of risk. American Funds 2030 is currently generating about -0.32 per unit of volatility. If you would invest 1,648 in American Funds 2030 on January 20, 2024 and sell it today you would lose (49.00) from holding American Funds 2030 or give up 2.97% of portfolio value over 90 days.
| Time Period | 1 Month [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard European Stock vs. American Funds 2030
Performance |
| Timeline |
| Vanguard European Stock |
| American Funds 2030 |
Vanguard European and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard European and American Funds
The main advantage of trading using opposite Vanguard European and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard European position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Vanguard European vs. Vanguard Pacific Stock | Vanguard European vs. Vanguard Emerging Markets | Vanguard European vs. Vanguard Reit Index | Vanguard European vs. Vanguard Small Cap Index |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds vs. American Mutual Fund |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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