vug/vtv pair (growth/value)

jim leahy

i never thought of growth vs. value as a pair trade before, but why not? this week barrons
had an article about value finally replacing growth. i used vanguard value and growth etfs as
the proxy but there are several other combinations of etfs you can use. i searched for some
articles on the topic and found an article that said when rates are rising growth out-performs and
when rates are falling value out-performs, but i can no longer find it so i can't link to the source.
fidelity has a table of growth vs. value performance on a yearly basis but not on a finer granularity.

i plotted the relative performance and short-term returns, shown in the below graphic. i also ran an
analysis of these in my python script. the results weren't too encouraging since this pair isn't
highly co-integrated and only slightly highly correlated, so the problem becomes one of deciding
when to enter the trade and which will outperform. as a start, i'd look at the interest rate condition
mentioned above, and then look for relative performance changes.

i ran a backtest of the pair for the past 9 days. performance isn't bad.

i'm also attaching the co-integration and correlation matrix, which when run, picked rsp and vtv
and highly co-integrated pairs, but that's a different topic.


  • vug_vtv.png
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  • coint_corr.png
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  • p_l_plot.png
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