Correlation Between Small Cap and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard Small-cap 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 Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Value Series and Vanguard Small Cap Value, you can compare the effects of market volatilities on Small Cap and Vanguard Small-cap 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 Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard Small-cap.
Diversification Opportunities for Small Cap and Vanguard Small-cap
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Vanguard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Value Series are associated (or correlated) with Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard Small-cap
Assuming the 90 days horizon Small Cap Value Series is expected to generate 1.29 times more return on investment than Vanguard Small-cap. However, Small Cap is 1.29 times more volatile than Vanguard Small Cap Value. It trades about 0.32 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.29 per unit of risk. If you would invest 1,687 in Small Cap Value Series on August 28, 2024 and sell it today you would earn a total of 193.00 from holding Small Cap Value Series or generate 11.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value Series vs. Vanguard Small Cap Value
Performance |
| Timeline |
| Small Cap Value |
| Vanguard Small Cap |
Small Cap and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard Small-cap
The main advantage of trading using opposite Small Cap and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard Small-cap 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 Small-cap will offset losses from the drop in Vanguard Small-cap's long position.| Small Cap vs. Lord Abbett Trust | Small Cap vs. Lord Abbett Trust | Small Cap vs. Floating Rate Fund | Small Cap vs. Lord Abbett Inv |
| Vanguard Small-cap vs. Royce Global Financial | Vanguard Small-cap vs. Goldman Sachs Financial | Vanguard Small-cap vs. Davis Financial Fund | Vanguard Small-cap vs. Blackrock Financial Institutions |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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