Correlation Between Vanguard Value and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Vanguard Materials 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 Materials 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 Materials Index, you can compare the effects of market volatilities on Vanguard Value and Vanguard Materials 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 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Vanguard Materials.
Diversification Opportunities for Vanguard Value and Vanguard Materials
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Vanguard Value i.e., Vanguard Value and Vanguard Materials go up and down completely randomly.
Pair Corralation between Vanguard Value and Vanguard Materials
Assuming the 90 days horizon Vanguard Value is expected to generate 1.14 times less return on investment than Vanguard Materials. But when comparing it to its historical volatility, Vanguard Value Index is 1.31 times less risky than Vanguard Materials. It trades about 0.22 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 9,341 in Vanguard Materials Index on April 24, 2025 and sell it today you would earn a total of 1,066 from holding Vanguard Materials Index or generate 11.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Value Index vs. Vanguard Materials Index
Performance |
| Timeline |
| Vanguard Value Index |
| Vanguard Materials Index |
Vanguard Value and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Value and Vanguard Materials
The main advantage of trading using opposite Vanguard Value and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value position performs unexpectedly, Vanguard Materials 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 Vanguard Materials will offset losses from the drop in Vanguard Materials' long position.| Vanguard Value vs. Vanguard Small Cap Value | Vanguard Value vs. Vanguard Growth Index | Vanguard Value vs. Vanguard Mid Cap Value | Vanguard Value vs. Vanguard Small Cap Index |
| Vanguard Materials vs. Vanguard Emerging Markets | Vanguard Materials vs. Vanguard Total International | Vanguard Materials vs. Vanguard Reit Index | Vanguard Materials vs. Vanguard Industrials Index |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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