Correlation Between Extended Market and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both Extended Market 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 Extended Market and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Vanguard Total Stock, you can compare the effects of market volatilities on Extended Market 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 Extended Market with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Vanguard Total.
Diversification Opportunities for Extended Market and Vanguard Total
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Extended and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index 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 Extended Market 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 Extended Market Index 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 Extended Market i.e., Extended Market and Vanguard Total go up and down completely randomly.
Pair Corralation between Extended Market and Vanguard Total
Assuming the 90 days horizon Extended Market Index is expected to generate 1.49 times more return on investment than Vanguard Total. However, Extended Market is 1.49 times more volatile than Vanguard Total Stock. It trades about 0.27 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.22 per unit of risk. If you would invest 2,327 in Extended Market Index on August 29, 2024 and sell it today you would earn a total of 188.00 from holding Extended Market Index or generate 8.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Vanguard Total Stock
Performance |
| Timeline |
| Extended Market Index |
| Vanguard Total Stock |
Extended Market and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Vanguard Total
The main advantage of trading using opposite Extended Market and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market 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.| Extended Market vs. Queens Road Small | Extended Market vs. Boston Partners Small | Extended Market vs. Hennessy Nerstone Mid | Extended Market vs. Lord Abbett Small |
| Vanguard Total vs. Franklin Federal Limited Term | Vanguard Total vs. Rbc Short Duration | Vanguard Total vs. Touchstone Ultra Short | Vanguard Total vs. Locorr Longshort Modities |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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