Correlation Between American Funds and Vanguard Emerging

Can any of the company-specific risk be diversified away by investing in both American Funds and Vanguard Emerging 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 American Funds and Vanguard Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds Developing and Vanguard Emerging Markets, you can compare the effects of market volatilities on American Funds and Vanguard Emerging 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 American Funds with a short position of Vanguard Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Vanguard Emerging.

Diversification Opportunities for American Funds and Vanguard Emerging

0.96

Correlation Coefficient

American Funds  Vanguard Emerging

Almost no diversification

The 3 months correlation between American and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Developing and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets and American Funds 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 American Funds Developing are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of American Funds i.e., American Funds and Vanguard Emerging go up and down completely randomly.

Pair Corralation between American Funds and Vanguard Emerging

Assuming the 90 days horizon American Funds Developing is expected to generate 0.99 times more return on investment than Vanguard Emerging. However, American Funds Developing is 1.01 times less risky than Vanguard Emerging. It trades about 0.06 of its potential returns per unit of risk. Vanguard Emerging Markets is currently generating about 0.05 per unit of risk. If you would invest  832.00  in American Funds Developing on January 19, 2024 and sell it today you would earn a total of  180.00  from holding American Funds Developing or generate 21.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Funds Developing  vs.  Vanguard Emerging Markets

American Funds Developing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Emerging Markets

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Emerging Markets are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and Vanguard Emerging

The main advantage of trading using opposite American Funds and Vanguard Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Vanguard Emerging 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 Emerging will offset losses from the drop in Vanguard Emerging's long position.

The idea behind American Funds Developing and Vanguard Emerging Markets 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 Commodity Directory module to find actively traded commodities issued by global exchanges.