Correlation Between Small Cap and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Small Cap and Vanguard Total 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 Total 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 Total Stock, you can compare the effects of market volatilities on Small Cap and Vanguard Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Vanguard Total.
Diversification Opportunities for Small Cap and Vanguard Total
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Vanguard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Total go up and down completely randomly.
Pair Corralation between Small Cap and Vanguard Total
Assuming the 90 days horizon Small Cap is expected to generate 1.08 times less return on investment than Vanguard Total. In addition to that, Small Cap is 1.58 times more volatile than Vanguard Total Stock. It trades about 0.08 of its total potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.13 per unit of volatility. If you would invest 9,759 in Vanguard Total Stock on August 30, 2024 and sell it today you would earn a total of 4,755 from holding Vanguard Total Stock or generate 48.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. Vanguard Total Stock
Performance |
| Timeline |
| Small Cap Core |
| Vanguard Total Stock |
Small Cap and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Vanguard Total
The main advantage of trading using opposite Small Cap and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total's long position.| Small Cap vs. Scharf Global Opportunity | Small Cap vs. Ms Global Fixed | Small Cap vs. Barings Global Floating | Small Cap vs. Ab Global Bond |
| Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Total Bond | Vanguard Total vs. Vanguard 500 Index | Vanguard Total vs. Vanguard Reit Index |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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