Correlation Between Vanguard and ARK Innovation

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

By analyzing existing cross correlation between Vanguard SP Mid Cap and ARK Innovation ETF, you can compare the effects of market volatilities on Vanguard and ARK Innovation 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 ARK Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and ARK Innovation.

Diversification Opportunities for Vanguard and ARK Innovation

0.32

Correlation Coefficient

Vanguard  ARK Innovation

Weak diversification

The 3 months correlation between Vanguard and ARK is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Mid Cap and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF 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 SP Mid Cap are associated (or correlated) with ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of Vanguard i.e., Vanguard and ARK Innovation go up and down completely randomly.

Pair Corralation between Vanguard and ARK Innovation

Given the investment horizon of 90 days Vanguard is expected to generate 1.09 times less return on investment than ARK Innovation. But when comparing it to its historical volatility, Vanguard SP Mid Cap is 2.48 times less risky than ARK Innovation. It trades about 0.21 of its potential returns per unit of risk. ARK Innovation ETF is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,429  in ARK Innovation ETF on January 26, 2024 and sell it today you would earn a total of  961.00  from holding ARK Innovation ETF or generate 28.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Vanguard SP Mid Cap  vs.  ARK Innovation ETF

Vanguard SP Mid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Mid Cap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ARK Innovation ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARK Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, ARK Innovation is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard and ARK Innovation

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

The idea behind Vanguard SP Mid Cap and ARK Innovation ETF 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.