Correlation Between Largecap ETF and Total Stock

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

Diversification Opportunities for Largecap ETF and Total Stock

1.0
  Correlation Coefficient

No risk reduction

The 3 months correlation between Largecap and Total is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Largecap ETF Vanguard and Total Stock Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Stock Market and Largecap ETF 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 Largecap ETF Vanguard are associated (or correlated) with Total Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Stock Market has no effect on the direction of Largecap ETF i.e., Largecap ETF and Total Stock go up and down completely randomly.

Pair Corralation between Largecap ETF and Total Stock

Allowing for the 90-day total investment horizon Largecap ETF Vanguard is expected to generate 0.99 times more return on investment than Total Stock. However, Largecap ETF Vanguard is 1.01 times less risky than Total Stock. It trades about -0.1 of its potential returns per unit of risk. Total Stock Market is currently generating about -0.1 per unit of risk. If you would invest  19,683  in Largecap ETF Vanguard on March 26, 2022 and sell it today you would lose (1,839)  from holding Largecap ETF Vanguard or give up 9.34% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Largecap ETF Vanguard  vs.  Total Stock Market

 Performance (%) 
      Timeline 
Largecap ETF Vanguard 
Largecap Performance
0 of 100
Over the last 90 days Largecap ETF Vanguard has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly stable which may send shares a bit higher in July 2022. The latest fuss may also be a sign of long-term up-swing for the fund sophisticated investors.

Largecap Price Channel

Total Stock Market 
Total Performance
0 of 100
Over the last 90 days Total Stock Market has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's basic indicators remain nearly stable which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Total Price Channel

Largecap ETF and Total Stock Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Largecap ETF and Total Stock

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

Largecap ETF Vanguard

Pair trading matchups for Largecap ETF

The idea behind Largecap ETF Vanguard and Total Stock Market 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.

Total Stock Market

Pair trading matchups for Total Stock

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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