Correlation Between Small Cap and Vanguard Consumer
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard Consumer 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 Consumer 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 Sumer Staples, you can compare the effects of market volatilities on Small Cap and Vanguard Consumer 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 Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard Consumer.
Diversification Opportunities for Small Cap and Vanguard Consumer
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Vanguard Sumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sumer Staples 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 Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sumer Staples has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Consumer go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard Consumer
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.59 times more return on investment than Vanguard Consumer. However, Small Cap is 1.59 times more volatile than Vanguard Sumer Staples. It trades about 0.19 of its potential returns per unit of risk. Vanguard Sumer Staples is currently generating about -0.13 per unit of risk. If you would invest 1,789 in Small Cap Equity on October 23, 2024 and sell it today you would earn a total of 56.00 from holding Small Cap Equity or generate 3.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Vanguard Sumer Staples
Performance |
| Timeline |
| Small Cap Equity |
| Vanguard Sumer Staples |
Small Cap and Vanguard Consumer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard Consumer
The main advantage of trading using opposite Small Cap and Vanguard Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard Consumer 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 Consumer will offset losses from the drop in Vanguard Consumer's long position.| Small Cap vs. Janus Investment | Small Cap vs. Franklin Government Money | Small Cap vs. Schwab Government Money | Small Cap vs. Hsbc Treasury Money |
| Vanguard Consumer vs. Small Cap Equity | Vanguard Consumer vs. Doubleline Core Fixed | Vanguard Consumer vs. Quantitative Longshort Equity | Vanguard Consumer vs. Smallcap World 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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