Correlation Between American Funds and Vanguard Small
Can any of the company-specific risk be diversified away by investing in both American Funds and Vanguard Small 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 American Funds and Vanguard Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2035 and Vanguard Small Cap Value, you can compare the effects of market volatilities on American Funds and Vanguard Small 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 American Funds with a short position of Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Vanguard Small.
Diversification Opportunities for American Funds and Vanguard Small
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Vanguard is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2035 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 American Funds 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 American Funds 2035 are associated (or correlated) with Vanguard Small. 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 American Funds i.e., American Funds and Vanguard Small go up and down completely randomly.
Pair Corralation between American Funds and Vanguard Small
Assuming the 90 days horizon American Funds is expected to generate 1.05 times less return on investment than Vanguard Small. But when comparing it to its historical volatility, American Funds 2035 is 1.83 times less risky than Vanguard Small. It trades about 0.14 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,192 in Vanguard Small Cap Value on September 12, 2024 and sell it today you would earn a total of 858.00 from holding Vanguard Small Cap Value or generate 20.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2035 vs. Vanguard Small Cap Value
Performance |
| Timeline |
| American Funds 2035 |
| Vanguard Small Cap |
American Funds and Vanguard Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Vanguard Small
The main advantage of trading using opposite American Funds and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Vanguard Small 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 will offset losses from the drop in Vanguard Small's long position.| American Funds vs. Vanguard Small Cap Value | American Funds vs. Lord Abbett Small | American Funds vs. Fidelity Small Cap | American Funds vs. Palm Valley Capital |
| Vanguard Small vs. Jp Morgan Smartretirement | Vanguard Small vs. Sa Worldwide Moderate | Vanguard Small vs. Fidelity Managed Retirement | Vanguard Small vs. Qs Moderate Growth |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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