Correlation Between Vanguard Small and Grayscale Bitcoin

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Grayscale Bitcoin 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 Vanguard Small and Grayscale Bitcoin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Index and Grayscale Bitcoin Mini, you can compare the effects of market volatilities on Vanguard Small and Grayscale Bitcoin 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 Vanguard Small with a short position of Grayscale Bitcoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Grayscale Bitcoin.

Diversification Opportunities for Vanguard Small and Grayscale Bitcoin

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Grayscale is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Grayscale Bitcoin Mini in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grayscale Bitcoin Mini and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with Grayscale Bitcoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grayscale Bitcoin Mini has no effect on the direction of Vanguard Small i.e., Vanguard Small and Grayscale Bitcoin go up and down completely randomly.

Pair Corralation between Vanguard Small and Grayscale Bitcoin

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 4.53 times less return on investment than Grayscale Bitcoin. But when comparing it to its historical volatility, Vanguard Small Cap Index is 3.5 times less risky than Grayscale Bitcoin. It trades about 0.21 of its potential returns per unit of risk. Grayscale Bitcoin Mini is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,585  in Grayscale Bitcoin Mini on September 12, 2024 and sell it today you would earn a total of  1,909  from holding Grayscale Bitcoin Mini or generate 73.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Small Cap Index  vs.  Grayscale Bitcoin Mini

 Performance 
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small sustained solid returns over the last few months and may actually be approaching a breakup point.
Grayscale Bitcoin Mini 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Grayscale Bitcoin Mini are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Grayscale Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Small and Grayscale Bitcoin Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Small and Grayscale Bitcoin

The main advantage of trading using opposite Vanguard Small and Grayscale Bitcoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Grayscale Bitcoin 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 Grayscale Bitcoin will offset losses from the drop in Grayscale Bitcoin's long position.
The idea behind Vanguard Small Cap Index and Grayscale Bitcoin Mini pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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