Can any of the company-specific risk be diversified away by investing in both Vanguard Mid and Hartford Total 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 Mid and Hartford Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Mid Cap Index and Hartford Total Return, you can compare the effects of market volatilities on Vanguard Mid and Hartford Total 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 Mid with a short position of Hartford Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and Hartford Total.
Diversification Opportunities for Vanguard Mid and Hartford Total
The 3 months correlation between Vanguard and Hartford is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid-Cap Index and Hartford Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Total Return and Vanguard Mid 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 Mid Cap Index are associated (or correlated) with Hartford Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Total Return has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Hartford Total go up and down completely randomly.
Pair Corralation between Vanguard Mid and Hartford Total
Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to under-perform the Hartford Total. In addition to that, Vanguard Mid is 2.13 times more volatile than Hartford Total Return. It trades about -0.23 of its total potential returns per unit of risk. Hartford Total Return is currently generating about -0.11 per unit of volatility. If you would invest 3,277 in Hartford Total Return on June 27, 2023 and sell it today you would lose (23.00) from holding Hartford Total Return or give up 0.7% of portfolio value over 90 days.
Over the last 90 days Vanguard Mid Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the insiders.
Over the last 90 days Hartford Total Return has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hartford Total is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Mid and Hartford Total Volatility Contrast
Predicted Return Density
Pair Trading with Vanguard Mid and Hartford Total
The main advantage of trading using opposite Vanguard Mid and Hartford Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid position performs unexpectedly, Hartford Total 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 Hartford Total will offset losses from the drop in Hartford Total's long position.
The idea behind Vanguard Mid Cap Index and Hartford Total Return 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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