Correlation Between VANGUARD 500 and AMERICAN FUNDS

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Can any of the company-specific risk be diversified away by investing in both VANGUARD 500 and AMERICAN FUNDS 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 500 and AMERICAN FUNDS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VANGUARD 500 INDEX and AMERICAN FUNDS FUNDAMENTAL, you can compare the effects of market volatilities on VANGUARD 500 and AMERICAN FUNDS 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 500 with a short position of AMERICAN FUNDS. Check out your portfolio center. Please also check ongoing floating volatility patterns of VANGUARD 500 and AMERICAN FUNDS.

Diversification Opportunities for VANGUARD 500 and AMERICAN FUNDS

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between VANGUARD and AMERICAN is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD 500 INDEX and AMERICAN FUNDS FUNDAMENTAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN FUNDS FUNDA and VANGUARD 500 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 500 INDEX are associated (or correlated) with AMERICAN FUNDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN FUNDS FUNDA has no effect on the direction of VANGUARD 500 i.e., VANGUARD 500 and AMERICAN FUNDS go up and down completely randomly.

Pair Corralation between VANGUARD 500 and AMERICAN FUNDS

Assuming the 90 days horizon VANGUARD 500 is expected to generate 1.32 times less return on investment than AMERICAN FUNDS. In addition to that, VANGUARD 500 is 1.09 times more volatile than AMERICAN FUNDS FUNDAMENTAL. It trades about 0.11 of its total potential returns per unit of risk. AMERICAN FUNDS FUNDAMENTAL is currently generating about 0.16 per unit of volatility. If you would invest  6,008  in AMERICAN FUNDS FUNDAMENTAL on September 8, 2022 and sell it today you would earn a total of  307.00  from holding AMERICAN FUNDS FUNDAMENTAL or generate 5.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

VANGUARD 500 INDEX  vs.  AMERICAN FUNDS FUNDAMENTAL

 Performance (%) 
       Timeline  
VANGUARD 500 INDEX 
VANGUARD Performance
0 of 100
Over the last 90 days VANGUARD 500 INDEX has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, VANGUARD 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

VANGUARD Price Channel

AMERICAN FUNDS FUNDA 
AMERICAN Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN FUNDS FUNDAMENTAL are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, AMERICAN FUNDS is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

AMERICAN Price Channel

VANGUARD 500 and AMERICAN FUNDS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VANGUARD 500 and AMERICAN FUNDS

The main advantage of trading using opposite VANGUARD 500 and AMERICAN FUNDS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VANGUARD 500 position performs unexpectedly, AMERICAN FUNDS 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 AMERICAN FUNDS will offset losses from the drop in AMERICAN FUNDS's long position.
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The idea behind VANGUARD 500 INDEX and AMERICAN FUNDS FUNDAMENTAL 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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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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