Correlation Between Vanguard Value and Listed Funds

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

By analyzing existing cross correlation between Vanguard Value Index and Listed Funds Trust, you can compare the effects of market volatilities on Vanguard Value and Listed Funds 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 Value with a short position of Listed Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Listed Funds.

Diversification Opportunities for Vanguard Value and Listed Funds

Almost no diversification

The 3 months correlation between Vanguard and Listed is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Listed Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Listed Funds Trust and Vanguard Value 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 Value Index are associated (or correlated) with Listed Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Listed Funds Trust has no effect on the direction of Vanguard Value i.e., Vanguard Value and Listed Funds go up and down completely randomly.

Pair Corralation between Vanguard Value and Listed Funds

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 1.09 times more return on investment than Listed Funds. However, Vanguard Value is 1.09 times more volatile than Listed Funds Trust. It trades about 0.06 of its potential returns per unit of risk. Listed Funds Trust is currently generating about 0.02 per unit of risk. If you would invest  12,512  in Vanguard Value Index on September 1, 2023 and sell it today you would earn a total of  1,679  from holding Vanguard Value Index or generate 13.42% return on investment over 90 days.

Vanguard Value Index  vs.  Listed Funds Trust

Vanguard Value Index

Vanguard Performance

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Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Listed Funds Trust

Listed Performance

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Over the last 90 days Listed Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Listed Funds 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 Value and Listed Funds

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

The idea behind Vanguard Value Index and Listed Funds Trust 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.