Correlation Between Vanguard and SPDR Kensho

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Can any of the company-specific risk be diversified away by investing in both Vanguard and SPDR Kensho 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 and SPDR Kensho into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard US Momentum and SPDR Kensho New, you can compare the effects of market volatilities on Vanguard and SPDR Kensho 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 with a short position of SPDR Kensho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and SPDR Kensho.

Diversification Opportunities for Vanguard and SPDR Kensho

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Vanguard and SPDR is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard US Momentum and SPDR Kensho New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Kensho New and Vanguard 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 US Momentum are associated (or correlated) with SPDR Kensho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Kensho New has no effect on the direction of Vanguard i.e., Vanguard and SPDR Kensho go up and down completely randomly.

Pair Corralation between Vanguard and SPDR Kensho

Given the investment horizon of 90 days Vanguard US Momentum is expected to generate 0.79 times more return on investment than SPDR Kensho. However, Vanguard US Momentum is 1.27 times less risky than SPDR Kensho. It trades about 0.08 of its potential returns per unit of risk. SPDR Kensho New is currently generating about 0.04 per unit of risk. If you would invest  11,080  in Vanguard US Momentum on December 29, 2023 and sell it today you would earn a total of  3,926  from holding Vanguard US Momentum or generate 35.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard US Momentum  vs.  SPDR Kensho New

 Performance 
       Timeline  
Vanguard US Momentum 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard US Momentum are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Vanguard displayed solid returns over the last few months and may actually be approaching a breakup point.
SPDR Kensho New 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Kensho New are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, SPDR Kensho is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard and SPDR Kensho Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard and SPDR Kensho

The main advantage of trading using opposite Vanguard and SPDR Kensho positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard position performs unexpectedly, SPDR Kensho 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 SPDR Kensho will offset losses from the drop in SPDR Kensho's long position.
The idea behind Vanguard US Momentum and SPDR Kensho New 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.
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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