Correlation Between Global Hard and Vanguard Materials

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

By analyzing existing cross correlation between Global Hard Assets and Vanguard Materials Index, you can compare the effects of market volatilities on Global Hard and Vanguard Materials 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 Global Hard with a short position of Vanguard Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Hard and Vanguard Materials.

Diversification Opportunities for Global Hard and Vanguard Materials

0.58

Correlation Coefficient

Global Hard  Vanguard Materials

Very weak diversification

The 3 months correlation between Global and Vanguard is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Global Hard Assets and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Global Hard 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 Global Hard Assets are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Global Hard i.e., Global Hard and Vanguard Materials go up and down completely randomly.

Pair Corralation between Global Hard and Vanguard Materials

Assuming the 90 days horizon Global Hard is expected to generate 1.16 times less return on investment than Vanguard Materials. In addition to that, Global Hard is 1.35 times more volatile than Vanguard Materials Index. It trades about 0.07 of its total potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.11 per unit of volatility. If you would invest  10,117  in Vanguard Materials Index on March 5, 2024 and sell it today you would earn a total of  166.00  from holding Vanguard Materials Index or generate 1.64% return on investment over 90 days.

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

Global Hard Assets  vs.  Vanguard Materials Index

Global Hard Assets

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Hard Assets are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Global Hard showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Materials Index

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index 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 Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Hard and Vanguard Materials

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

The idea behind Global Hard Assets and Vanguard Materials Index 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.