Correlation Between Vanguard Small-cap and Royce Micro-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Royce Micro-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 Vanguard Small-cap and Royce Micro-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Index and Royce Micro Cap Fund, you can compare the effects of market volatilities on Vanguard Small-cap and Royce Micro-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 Vanguard Small-cap with a short position of Royce Micro-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Royce Micro-cap.
Diversification Opportunities for Vanguard Small-cap and Royce Micro-cap
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Royce is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Royce Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Micro Cap and Vanguard 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 Vanguard Small Cap Index are associated (or correlated) with Royce Micro-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Micro Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Royce Micro-cap go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Royce Micro-cap
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.8 times more return on investment than Royce Micro-cap. However, Vanguard Small Cap Index is 1.25 times less risky than Royce Micro-cap. It trades about 0.08 of its potential returns per unit of risk. Royce Micro Cap Fund is currently generating about 0.05 per unit of risk. If you would invest 8,891 in Vanguard Small Cap Index on August 24, 2024 and sell it today you would earn a total of 3,452 from holding Vanguard Small Cap Index or generate 38.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Royce Micro Cap Fund
Performance |
| Timeline |
| Vanguard Small Cap |
| Royce Micro Cap |
Vanguard Small-cap and Royce Micro-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Royce Micro-cap
The main advantage of trading using opposite Vanguard Small-cap and Royce Micro-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Royce Micro-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 Royce Micro-cap will offset losses from the drop in Royce Micro-cap's long position.| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard Reit Index | Vanguard Small-cap vs. Vanguard Value Index | Vanguard Small-cap vs. Vanguard Small Cap Value |
| Royce Micro-cap vs. Vanguard Small Cap Index | Royce Micro-cap vs. Vanguard Small Cap Index | Royce Micro-cap vs. Vanguard Small Cap Index | Royce Micro-cap vs. Fidelity Small Cap |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
Other Complementary Tools
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Money Managers Screen money managers from public funds and ETFs managed around the world |