Correlation Between Vanguard Value and Tokyo Electric

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

Diversification Opportunities for Vanguard Value and Tokyo Electric

0.45

Correlation Coefficient

Vanguard Value  Tokyo Electric

Very weak diversification

The 3 months correlation between Vanguard and Tokyo is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Tokyo Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electric Power 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 Tokyo Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electric Power has no effect on the direction of Vanguard Value i.e., Vanguard Value and Tokyo Electric go up and down completely randomly.

Pair Corralation between Vanguard Value and Tokyo Electric

Considering the 90-day investment horizon Vanguard Value is expected to generate 4.27 times less return on investment than Tokyo Electric. But when comparing it to its historical volatility, Vanguard Value Index is 9.98 times less risky than Tokyo Electric. It trades about 0.14 of its potential returns per unit of risk. Tokyo Electric Power is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  599.00  in Tokyo Electric Power on January 25, 2024 and sell it today you would earn a total of  76.00  from holding Tokyo Electric Power or generate 12.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Vanguard Value Index  vs.  Tokyo Electric Power

Vanguard Value Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 11 (%) 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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tokyo Electric Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electric Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Tokyo Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Value and Tokyo Electric

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

The idea behind Vanguard Value Index and Tokyo Electric Power 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.