Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Vanguard Russell 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 Vanguard Russell 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 Vanguard Russell 2000, you can compare the effects of market volatilities on Vanguard Value and Vanguard Russell 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 Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Vanguard Russell.
Diversification Opportunities for Vanguard Value and Vanguard Russell
The 3 months correlation between Vanguard and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Vanguard Value i.e., Vanguard Value and Vanguard Russell go up and down completely randomly.
Pair Corralation between Vanguard Value and Vanguard Russell
Considering the 90-day investment horizon Vanguard Value Index is expected to generate 0.72 times more return on investment than Vanguard Russell. However, Vanguard Value Index is 1.39 times less risky than Vanguard Russell. It trades about 0.07 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about -0.09 per unit of risk. If you would invest 15,882 in Vanguard Value Index on March 6, 2024 and sell it today you would earn a total of 146.00 from holding Vanguard Value Index or generate 0.92% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 4 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Over the last 90 days Vanguard Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Russell is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.