Correlation Between Small Cap and Vanguard Intermediate-ter
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard Intermediate-ter 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 Intermediate-ter into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Equity and Vanguard Intermediate Term Bond, you can compare the effects of market volatilities on Small Cap and Vanguard Intermediate-ter 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 Intermediate-ter. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard Intermediate-ter.
Diversification Opportunities for Small Cap and Vanguard Intermediate-ter
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Vanguard is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Vanguard Intermediate Term Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate-ter 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 Equity are associated (or correlated) with Vanguard Intermediate-ter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate-ter has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Intermediate-ter go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard Intermediate-ter
Assuming the 90 days horizon Small Cap Equity is expected to generate 2.88 times more return on investment than Vanguard Intermediate-ter. However, Small Cap is 2.88 times more volatile than Vanguard Intermediate Term Bond. It trades about 0.06 of its potential returns per unit of risk. Vanguard Intermediate Term Bond is currently generating about 0.04 per unit of risk. If you would invest 1,601 in Small Cap Equity on August 31, 2024 and sell it today you would earn a total of 430.00 from holding Small Cap Equity or generate 26.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Vanguard Intermediate Term Bon
Performance |
| Timeline |
| Small Cap Equity |
| Vanguard Intermediate-ter |
Small Cap and Vanguard Intermediate-ter Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard Intermediate-ter
The main advantage of trading using opposite Small Cap and Vanguard Intermediate-ter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard Intermediate-ter 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 Intermediate-ter will offset losses from the drop in Vanguard Intermediate-ter's long position.| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. T Rowe Price | Small Cap vs. HUMANA INC | Small Cap vs. SCOR PK |
| Vanguard Intermediate-ter vs. Balanced Fund Retail | Vanguard Intermediate-ter vs. Ms Global Fixed | Vanguard Intermediate-ter vs. Huber Capital Equity | Vanguard Intermediate-ter vs. Calamos Global Equity |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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