Correlation Between Parnassus Fund and Vanguard Extended

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

By analyzing existing cross correlation between Parnassus Fund Inst and Vanguard Extended Market, you can compare the effects of market volatilities on Parnassus Fund and Vanguard Extended 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 Parnassus Fund with a short position of Vanguard Extended. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parnassus Fund and Vanguard Extended.

Diversification Opportunities for Parnassus Fund and Vanguard Extended

0.9

Correlation Coefficient

Parnassus Fund  Vanguard Extended

Almost no diversification

The 3 months correlation between Parnassus and Vanguard is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Parnassus Fund Inst and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market and Parnassus Fund 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 Parnassus Fund Inst are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of Parnassus Fund i.e., Parnassus Fund and Vanguard Extended go up and down completely randomly.

Pair Corralation between Parnassus Fund and Vanguard Extended

Assuming the 90 days horizon Parnassus Fund Inst is expected to under-perform the Vanguard Extended. But the mutual fund apears to be less risky and, when comparing its historical volatility, Parnassus Fund Inst is 1.03 times less risky than Vanguard Extended. The mutual fund trades about -0.34 of its potential returns per unit of risk. The Vanguard Extended Market is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  13,058  in Vanguard Extended Market on January 20, 2024 and sell it today you would lose (751.00) from holding Vanguard Extended Market or give up 5.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Parnassus Fund Inst  vs.  Vanguard Extended Market

Parnassus Fund Inst

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Parnassus Fund Inst has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Parnassus Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Extended Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Extended Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Extended is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Parnassus Fund and Vanguard Extended

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

The idea behind Parnassus Fund Inst and Vanguard Extended Market 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 Anywhere module to track or share privately all of your investments from the convenience of any device.