Correlation Between AMS Small and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both AMS Small and Vanguard FTSE 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 AMS Small and Vanguard FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AMS Small Cap and Vanguard FTSE North, you can compare the effects of market volatilities on AMS Small and Vanguard FTSE 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 AMS Small with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Vanguard FTSE.
Diversification Opportunities for AMS Small and Vanguard FTSE
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between AMS and Vanguard is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Vanguard FTSE North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE North and AMS Small 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 AMS Small Cap are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE North has no effect on the direction of AMS Small i.e., AMS Small and Vanguard FTSE go up and down completely randomly.
Pair Corralation between AMS Small and Vanguard FTSE
Assuming the 90 days trading horizon AMS Small Cap is expected to under-perform the Vanguard FTSE. But the index apears to be less risky and, when comparing its historical volatility, AMS Small Cap is 1.1 times less risky than Vanguard FTSE. The index trades about -0.25 of its potential returns per unit of risk. The Vanguard FTSE North is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 13,079 in Vanguard FTSE North on August 29, 2024 and sell it today you would earn a total of 908.00 from holding Vanguard FTSE North or generate 6.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AMS Small Cap vs. Vanguard FTSE North
Performance |
| Timeline |
AMS Small and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
AMS Small Cap
Pair trading matchups for AMS Small
Vanguard FTSE North
Pair trading matchups for Vanguard FTSE
Pair Trading with AMS Small and Vanguard FTSE
The main advantage of trading using opposite AMS Small and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AMS Small position performs unexpectedly, Vanguard FTSE 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 FTSE will offset losses from the drop in Vanguard FTSE's long position.The idea behind AMS Small Cap and Vanguard FTSE North 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.| Vanguard FTSE vs. Vanguard FTSE All World | Vanguard FTSE vs. Vanguard FTSE Developed | Vanguard FTSE vs. Vanguard FTSE All World | Vanguard FTSE vs. Vanguard FTSE Developed |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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