Correlation Between ETF Series and Vanguard Growth

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

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

Diversification Opportunities for ETF Series and Vanguard Growth

-0.12

Correlation Coefficient

ETF Series  Vanguard Growth

Good diversification

The 3 months correlation between ETF and Vanguard is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index and ETF Series 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 ETF Series Solutions are associated (or correlated) with Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of ETF Series i.e., ETF Series and Vanguard Growth go up and down completely randomly.

Pair Corralation between ETF Series and Vanguard Growth

Given the investment horizon of 90 days ETF Series Solutions is expected to generate 0.19 times more return on investment than Vanguard Growth. However, ETF Series Solutions is 5.39 times less risky than Vanguard Growth. It trades about -0.06 of its potential returns per unit of risk. Vanguard Growth Index is currently generating about -0.27 per unit of risk. If you would invest  2,338  in ETF Series Solutions on January 20, 2024 and sell it today you would lose (5.00) from holding ETF Series Solutions or give up 0.21% of portfolio value over 90 days.

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

ETF Series Solutions  vs.  Vanguard Growth Index

ETF Series Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, ETF Series is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Growth Index

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ETF Series and Vanguard Growth

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

The idea behind ETF Series Solutions and Vanguard Growth 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.