Correlation Between Balanced Fund and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Balanced Fund and Vanguard Small-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 Balanced Fund and Vanguard Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Fund Investor and Vanguard Small Cap Value, you can compare the effects of market volatilities on Balanced Fund and Vanguard Small-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 Balanced Fund with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and Vanguard Small-cap.
Diversification Opportunities for Balanced Fund and Vanguard Small-cap
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balanced and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor 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 Balanced Fund 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 Balanced Fund Investor are associated (or correlated) with Vanguard Small-cap. 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 Balanced Fund i.e., Balanced Fund and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Balanced Fund and Vanguard Small-cap
Assuming the 90 days horizon Balanced Fund Investor is expected to generate 0.54 times more return on investment than Vanguard Small-cap. However, Balanced Fund Investor is 1.86 times less risky than Vanguard Small-cap. It trades about -0.03 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about -0.05 per unit of risk. If you would invest 1,998 in Balanced Fund Investor on October 14, 2024 and sell it today you would lose (21.00) from holding Balanced Fund Investor or give up 1.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Fund Investor vs. Vanguard Small Cap Value
Performance |
| Timeline |
| Balanced Fund Investor |
| Vanguard Small Cap |
Balanced Fund and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Fund and Vanguard Small-cap
The main advantage of trading using opposite Balanced Fund and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund position performs unexpectedly, Vanguard Small-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 Vanguard Small-cap will offset losses from the drop in Vanguard Small-cap's long position.| Balanced Fund vs. Select Fund Investor | Balanced Fund vs. Heritage Fund Investor | Balanced Fund vs. Value Fund Investor | Balanced Fund vs. Growth Fund Investor |
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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