Correlation Between Vanguard Industrials and Industrial Select
Can any of the company-specific risk be diversified away by investing in both Vanguard Industrials and Industrial Select 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 Industrials and Industrial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Industrials Index and Industrial Select Sector, you can compare the effects of market volatilities on Vanguard Industrials and Industrial Select 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 Industrials with a short position of Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Industrials and Industrial Select.
Diversification Opportunities for Vanguard Industrials and Industrial Select
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Industrial is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and Vanguard Industrials 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 Industrials Index are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and Industrial Select go up and down completely randomly.
Pair Corralation between Vanguard Industrials and Industrial Select
Considering the 90-day investment horizon Vanguard Industrials Index is expected to generate 1.05 times more return on investment than Industrial Select. However, Vanguard Industrials is 1.05 times more volatile than Industrial Select Sector. It trades about 0.06 of its potential returns per unit of risk. Industrial Select Sector is currently generating about 0.06 per unit of risk. If you would invest 17,382 in Vanguard Industrials Index on January 19, 2024 and sell it today you would earn a total of 5,926 from holding Vanguard Industrials Index or generate 34.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Industrials Index vs. Industrial Select Sector
Performance |
| Timeline |
| Vanguard Industrials |
| Industrial Select Sector |
Vanguard Industrials and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Industrials and Industrial Select
The main advantage of trading using opposite Vanguard Industrials and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Industrials position performs unexpectedly, Industrial Select 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 Industrial Select will offset losses from the drop in Industrial Select's long position.| Vanguard Industrials vs. Invesco DWA Utilities | Vanguard Industrials vs. Invesco Dynamic Food | Vanguard Industrials vs. HUMANA INC | Vanguard Industrials vs. Aquagold International |
| Industrial Select vs. Invesco DWA Utilities | Industrial Select vs. Invesco Dynamic Food | Industrial Select vs. HUMANA INC | Industrial Select vs. Aquagold International |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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