Correlation Between Vanguard Multifactor and SPDR Russell

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

By analyzing existing cross correlation between Vanguard Multifactor and SPDR Russell 1000, you can compare the effects of market volatilities on Vanguard Multifactor and SPDR Russell 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 Multifactor with a short position of SPDR Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Multifactor and SPDR Russell.

Diversification Opportunities for Vanguard Multifactor and SPDR Russell

0.97

Correlation Coefficient

Vanguard Multifactor  SPDR Russell

Almost no diversification

The 3 months correlation between Vanguard and SPDR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor and SPDR Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Russell 1000 and Vanguard Multifactor 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 Multifactor are associated (or correlated) with SPDR Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Russell 1000 has no effect on the direction of Vanguard Multifactor i.e., Vanguard Multifactor and SPDR Russell go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and SPDR Russell

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 1.25 times more return on investment than SPDR Russell. However, Vanguard Multifactor is 1.25 times more volatile than SPDR Russell 1000. It trades about -0.19 of its potential returns per unit of risk. SPDR Russell 1000 is currently generating about -0.27 per unit of risk. If you would invest  12,573  in Vanguard Multifactor on February 3, 2024 and sell it today you would lose (452.00) from holding Vanguard Multifactor or give up 3.6% of portfolio value over 90 days.

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

Vanguard Multifactor  vs.  SPDR Russell 1000

Vanguard Multifactor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Russell 1000

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Russell 1000 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, SPDR Russell is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Multifactor and SPDR Russell

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

The idea behind Vanguard Multifactor and SPDR Russell 1000 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..