Correlation Between Vanguard Small and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small and SPDR SP 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 SPDR SP 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 SPDR SP 400, you can compare the effects of market volatilities on Vanguard Small and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and SPDR SP.

Diversification Opportunities for Vanguard Small and SPDR SP

VanguardSPDRDiversified AwayVanguardSPDRDiversified Away100%
0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Vanguard Small i.e., Vanguard Small and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard Small and SPDR SP

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 1.1 times less return on investment than SPDR SP. In addition to that, Vanguard Small is 1.08 times more volatile than SPDR SP 400. It trades about 0.05 of its total potential returns per unit of risk. SPDR SP 400 is currently generating about 0.06 per unit of volatility. If you would invest  6,892  in SPDR SP 400 on October 30, 2024 and sell it today you would earn a total of  2,107  from holding SPDR SP 400 or generate 30.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.8%
ValuesDaily Returns

Vanguard Small Cap Index  vs.  SPDR SP 400

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -20246810
JavaScript chart by amCharts 3.21.15VB MDYG
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan235240245250255260
SPDR SP 400 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan8688909294

Vanguard Small and SPDR SP Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.45-2.58-1.72-0.850.00.861.762.653.544.43 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15VB MDYG
       Returns  

Pair Trading with Vanguard Small and SPDR SP

The main advantage of trading using opposite Vanguard Small and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.
The idea behind Vanguard Small Cap Index and SPDR SP 400 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.
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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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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