Can any of the company-specific risk be diversified away by investing in both Vanguard Explorer and Lord Abbett 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 Explorer and Lord Abbett into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Explorer Fund and Lord Abbett Alpha, you can compare the effects of market volatilities on Vanguard Explorer and Lord Abbett 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 Explorer with a short position of Lord Abbett. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Explorer and Lord Abbett.
Diversification Opportunities for Vanguard Explorer and Lord Abbett
The 3 months correlation between Vanguard and Lord is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD EXPLORER FUND and LORD ABBETT ALPHA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lord Abbett Alpha and Vanguard Explorer 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 Explorer Fund are associated (or correlated) with Lord Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lord Abbett Alpha has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Lord Abbett go up and down completely randomly.
Pair Corralation between Vanguard Explorer and Lord Abbett
Assuming the 90 days horizon Vanguard Explorer Fund is expected to generate 1.17 times more return on investment than Lord Abbett. However, Vanguard Explorer is 1.17 times more volatile than Lord Abbett Alpha. It trades about 0.03 of its potential returns per unit of risk. Lord Abbett Alpha is currently generating about 0.02 per unit of risk. If you would invest 8,598 in Vanguard Explorer Fund on September 2, 2023 and sell it today you would earn a total of 839.00 from holding Vanguard Explorer Fund or generate 9.76% return on investment over 90 days.
Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Explorer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Lord Abbett Alpha has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lord Abbett is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Explorer and Lord Abbett Volatility Contrast
Predicted Return Density
Pair Trading with Vanguard Explorer and Lord Abbett
The main advantage of trading using opposite Vanguard Explorer and Lord Abbett positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Explorer position performs unexpectedly, Lord Abbett 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 Lord Abbett will offset losses from the drop in Lord Abbett's long position.
The idea behind Vanguard Explorer Fund and Lord Abbett Alpha 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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