Correlation Between Small Cap and Vanguard International
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard International 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 Small Cap and Vanguard International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Growth and Vanguard International Growth, you can compare the effects of market volatilities on Small Cap and Vanguard International 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 Small Cap with a short position of Vanguard International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard International.
Diversification Opportunities for Small Cap and Vanguard International
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Small and Vanguard is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Vanguard International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International and Small Cap 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 Small Cap Growth are associated (or correlated) with Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of Small Cap i.e., Small Cap and Vanguard International go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard International
Assuming the 90 days horizon Small Cap Growth is expected to generate 1.23 times more return on investment than Vanguard International. However, Small Cap is 1.23 times more volatile than Vanguard International Growth. It trades about 0.16 of its potential returns per unit of risk. Vanguard International Growth is currently generating about 0.1 per unit of risk. If you would invest 2,038 in Small Cap Growth on September 12, 2024 and sell it today you would earn a total of 223.00 from holding Small Cap Growth or generate 10.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Growth vs. Vanguard International Growth
Performance |
| Timeline |
| Small Cap Growth |
| Vanguard International |
Small Cap and Vanguard International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard International
The main advantage of trading using opposite Small Cap and Vanguard International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard International 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 International will offset losses from the drop in Vanguard International's long position.| Small Cap vs. Third Avenue Real | Small Cap vs. Aegis Value Fund | Small Cap vs. Litman Gregory Masters | Small Cap vs. Marsico Growth Fund |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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