Correlation Between Small-cap Value and Vanguard Growth
Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Vanguard Growth 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 Value and Vanguard Growth 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 Growth And, you can compare the effects of market volatilities on Small-cap Value and Vanguard Growth 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 Value with a short position of Vanguard Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Vanguard Growth.
Diversification Opportunities for Small-cap Value and Vanguard Growth
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small-cap and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and Vanguard Growth And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth And and Small-cap Value 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth And has no effect on the direction of Small-cap Value i.e., Small-cap Value and Vanguard Growth go up and down completely randomly.
Pair Corralation between Small-cap Value and Vanguard Growth
Assuming the 90 days horizon Small Cap Value Series is expected to generate 1.45 times more return on investment than Vanguard Growth. However, Small-cap Value is 1.45 times more volatile than Vanguard Growth And. It trades about 0.11 of its potential returns per unit of risk. Vanguard Growth And is currently generating about 0.11 per unit of risk. If you would invest 2,090 in Small Cap Value Series on September 3, 2024 and sell it today you would earn a total of 364.00 from holding Small Cap Value Series or generate 17.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Value Series vs. Vanguard Growth And
Performance |
| Timeline |
| Small Cap Value |
| Vanguard Growth And |
Small-cap Value and Vanguard Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-cap Value and Vanguard Growth
The main advantage of trading using opposite Small-cap Value and Vanguard Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, Vanguard Growth 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 Growth will offset losses from the drop in Vanguard Growth's long position.The idea behind Small Cap Value Series and Vanguard Growth And 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.
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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