Correlation Between Vanguard Value and Freedom Day

Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Freedom Day 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 Freedom Day 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 Freedom Day Dividend, you can compare the effects of market volatilities on Vanguard Value and Freedom Day 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 Freedom Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Freedom Day.

Diversification Opportunities for Vanguard Value and Freedom Day

0.77

Correlation Coefficient

Vanguard Value  Freedom Day

Poor diversification

The 3 months correlation between Vanguard and Freedom is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Freedom Day Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Day Dividend 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 Freedom Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Day Dividend has no effect on the direction of Vanguard Value i.e., Vanguard Value and Freedom Day go up and down completely randomly.

Pair Corralation between Vanguard Value and Freedom Day

Considering the 90-day investment horizon Vanguard Value Index is expected to under-perform the Freedom Day. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Value Index is 1.12 times less risky than Freedom Day. The etf trades about -0.18 of its potential returns per unit of risk. The Freedom Day Dividend is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  3,201  in Freedom Day Dividend on January 31, 2024 and sell it today you would lose (68.00) from holding Freedom Day Dividend or give up 2.12% of portfolio value over 90 days.

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

Vanguard Value Index  vs.  Freedom Day Dividend

Vanguard Value Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Freedom Day Dividend

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Freedom Day may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Vanguard Value and Freedom Day

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

The idea behind Vanguard Value Index and Freedom Day Dividend 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.