Correlation Between High Income and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both High Income 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 High Income 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 High Income Fund and Vanguard Small Cap Growth, you can compare the effects of market volatilities on High Income 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 High Income with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Vanguard Small-cap.
Diversification Opportunities for High Income and Vanguard Small-cap
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between High and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding High Income Fund and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and High Income 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 High Income Fund 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 High Income i.e., High Income and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between High Income and Vanguard Small-cap
Assuming the 90 days horizon High Income is expected to generate 26.21 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, High Income Fund is 7.01 times less risky than Vanguard Small-cap. It trades about 0.12 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest 7,563 in Vanguard Small Cap Growth on September 3, 2024 and sell it today you would earn a total of 904.00 from holding Vanguard Small Cap Growth or generate 11.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Income Fund vs. Vanguard Small Cap Growth
Performance |
| Timeline |
| High Income Fund |
| Vanguard Small Cap |
High Income and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Vanguard Small-cap
The main advantage of trading using opposite High Income and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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.| High Income vs. Vanguard High Yield Corporate | High Income vs. Vanguard High Yield Porate | High Income vs. Blackrock Hi Yld | High Income vs. Blackrock High Yield |
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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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