Correlation Between Vanguard Small and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Northern Lights 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 and Northern Lights 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 Northern Lights, you can compare the effects of market volatilities on Vanguard Small and Northern Lights 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 with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Northern Lights.
Diversification Opportunities for Vanguard Small and Northern Lights
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Northern is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Vanguard Small 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Vanguard Small i.e., Vanguard Small and Northern Lights go up and down completely randomly.
Pair Corralation between Vanguard Small and Northern Lights
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.63 times more return on investment than Northern Lights. However, Vanguard Small is 1.63 times more volatile than Northern Lights. It trades about 0.13 of its potential returns per unit of risk. Northern Lights is currently generating about 0.09 per unit of risk. If you would invest 10,509 in Vanguard Small Cap Index on September 1, 2024 and sell it today you would earn a total of 1,962 from holding Vanguard Small Cap Index or generate 18.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Northern Lights
Performance |
| Timeline |
| Vanguard Small Cap |
| Northern Lights |
Vanguard Small and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Northern Lights
The main advantage of trading using opposite Vanguard Small and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Vanguard Small vs. Vanguard Mid Cap Index | Vanguard Small vs. Vanguard Reit Index | Vanguard Small vs. Vanguard Value Index | Vanguard Small vs. Vanguard Small Cap Value |
| Northern Lights vs. Us Strategic Equity | Northern Lights vs. Cutler Equity | Northern Lights vs. Us Vector Equity | Northern Lights vs. Artisan Select Equity |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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