Can any of the company-specific risk be diversified away by investing in both Vanguard Growth 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 Growth 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 Growth Index and Hartford Total Return, you can compare the effects of market volatilities on Vanguard Growth 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 Growth with a short position of Hartford Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Growth and Hartford Total.
Diversification Opportunities for Vanguard Growth and Hartford Total
The 3 months correlation between Vanguard and Hartford is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Growth 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 Growth 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 Growth 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 Growth i.e., Vanguard Growth and Hartford Total go up and down completely randomly.
Pair Corralation between Vanguard Growth and Hartford Total
Considering the 90-day investment horizon Vanguard Growth Index is expected to generate 1.25 times more return on investment than Hartford Total. However, Vanguard Growth is 1.25 times more volatile than Hartford Total Return. It trades about 0.45 of its potential returns per unit of risk. Hartford Total Return is currently generating about 0.34 per unit of risk. If you would invest 28,149 in Vanguard Growth Index on September 5, 2023 and sell it today you would earn a total of 1,813 from holding Vanguard Growth Index or generate 6.44% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Hartford Total Return are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hartford Total is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Growth and Hartford Total Volatility Contrast
Predicted Return Density
Pair Trading with Vanguard Growth and Hartford Total
The main advantage of trading using opposite Vanguard Growth and Hartford Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Growth 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 Growth 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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