Correlation Between Vanguard and IndexIQ

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Can any of the company-specific risk be diversified away by investing in both Vanguard and IndexIQ 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 IndexIQ 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 IndexIQ, you can compare the effects of market volatilities on Vanguard and IndexIQ 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 IndexIQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and IndexIQ.

Diversification Opportunities for Vanguard and IndexIQ

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Vanguard and IndexIQ is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard US Momentum and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of Vanguard i.e., Vanguard and IndexIQ go up and down completely randomly.

Pair Corralation between Vanguard and IndexIQ

Given the investment horizon of 90 days Vanguard US Momentum is expected to generate 0.18 times more return on investment than IndexIQ. However, Vanguard US Momentum is 5.47 times less risky than IndexIQ. It trades about 0.04 of its potential returns per unit of risk. IndexIQ is currently generating about -0.07 per unit of risk. If you would invest  12,154  in Vanguard US Momentum on December 29, 2023 and sell it today you would earn a total of  2,852  from holding Vanguard US Momentum or generate 23.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy41.7%
ValuesDaily Returns

Vanguard US Momentum  vs.  IndexIQ

 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.
IndexIQ 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, IndexIQ is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard and IndexIQ Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard and IndexIQ

The main advantage of trading using opposite Vanguard and IndexIQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard position performs unexpectedly, IndexIQ 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 IndexIQ will offset losses from the drop in IndexIQ's long position.
The idea behind Vanguard US Momentum and IndexIQ 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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