Correlation Between Small Cap and Vanguard
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard 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 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Vanguard Sp Small Cap, you can compare the effects of market volatilities on Small Cap and Vanguard 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard.
Diversification Opportunities for Small Cap and Vanguard
Almost no diversification
The 3 months correlation between Small and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Vanguard Sp Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Sp Small 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 Core are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Sp Small has no effect on the direction of Small Cap i.e., Small Cap and Vanguard go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard
Assuming the 90 days horizon Small Cap is expected to generate 1.29 times less return on investment than Vanguard. In addition to that, Small Cap is 1.04 times more volatile than Vanguard Sp Small Cap. It trades about 0.17 of its total potential returns per unit of risk. Vanguard Sp Small Cap is currently generating about 0.24 per unit of volatility. If you would invest 38,689 in Vanguard Sp Small Cap on August 29, 2024 and sell it today you would earn a total of 3,421 from holding Vanguard Sp Small Cap or generate 8.84% 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 Core vs. Vanguard Sp Small Cap
Performance |
| Timeline |
| Small Cap Core |
| Vanguard Sp Small |
Small Cap and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard
The main advantage of trading using opposite Small Cap and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard 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 will offset losses from the drop in Vanguard's long position.| Small Cap vs. The National Tax Free | Small Cap vs. Ishares Municipal Bond | Small Cap vs. Franklin High Yield | Small Cap vs. Gamco Global Telecommunications |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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