Correlation Between Small Cap and Vanguard Equity
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard Equity 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 Equity 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 Equity Income, you can compare the effects of market volatilities on Small Cap and Vanguard Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard Equity.
Diversification Opportunities for Small Cap and Vanguard Equity
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Vanguard is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Vanguard Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Equity Income 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Equity Income has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Equity go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard Equity
Assuming the 90 days horizon Small Cap Equity is expected to under-perform the Vanguard Equity. In addition to that, Small Cap is 1.45 times more volatile than Vanguard Equity Income. It trades about -0.13 of its total potential returns per unit of risk. Vanguard Equity Income is currently generating about 0.11 per unit of volatility. If you would invest 4,176 in Vanguard Equity Income on December 11, 2024 and sell it today you would earn a total of 131.00 from holding Vanguard Equity Income or generate 3.14% 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 Equity Income
Performance |
| Timeline |
| Small Cap Equity |
| Vanguard Equity Income |
Small Cap and Vanguard Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard Equity
The main advantage of trading using opposite Small Cap and Vanguard Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard Equity 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 Equity will offset losses from the drop in Vanguard Equity's long position.| Small Cap vs. Gabelli Global Financial | Small Cap vs. Putnam Global Financials | Small Cap vs. Vanguard Financials Index | Small Cap vs. Prudential Financial Services |
| Vanguard Equity vs. Vanguard Dividend Growth | Vanguard Equity vs. Vanguard Wellesley Income | Vanguard Equity vs. Vanguard Wellington Fund | Vanguard Equity vs. Vanguard Growth And |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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