Correlation Between Vanguard Energy and Vanguard Dividend

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

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

Diversification Opportunities for Vanguard Energy and Vanguard Dividend

-0.21

Correlation Coefficient

Vanguard Energy  Vanguard Dividend

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Fund and Vanguard Dividend Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Dividend Growth and Vanguard Energy 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 Energy Fund are associated (or correlated) with Vanguard Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Dividend Growth has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Vanguard Dividend go up and down completely randomly.

Pair Corralation between Vanguard Energy and Vanguard Dividend

Assuming the 90 days horizon Vanguard Energy Fund is expected to generate 1.84 times more return on investment than Vanguard Dividend. However, Vanguard Energy is 1.84 times more volatile than Vanguard Dividend Growth. It trades about 0.39 of its potential returns per unit of risk. Vanguard Dividend Growth is currently generating about 0.51 per unit of risk. If you would invest  4,747  in Vanguard Energy Fund on February 16, 2024 and sell it today you would earn a total of  280.00  from holding Vanguard Energy Fund or generate 5.9% return on investment over 90 days.

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

Vanguard Energy Fund  vs.  Vanguard Dividend Growth

Vanguard Energy

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Dividend Growth

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Dividend Growth are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Vanguard Dividend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Energy and Vanguard Dividend

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

The idea behind Vanguard Energy Fund and Vanguard Dividend Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.