Correlation Between Vanguard Small and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Overlay Shares 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 Overlay Shares 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 Overlay Shares Core, you can compare the effects of market volatilities on Vanguard Small and Overlay Shares 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 Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Overlay Shares.
Diversification Opportunities for Vanguard Small and Overlay Shares
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and Overlay is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Vanguard Small i.e., Vanguard Small and Overlay Shares go up and down completely randomly.
Pair Corralation between Vanguard Small and Overlay Shares
Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 3.1 times more return on investment than Overlay Shares. However, Vanguard Small is 3.1 times more volatile than Overlay Shares Core. It trades about 0.22 of its potential returns per unit of risk. Overlay Shares Core is currently generating about -0.17 per unit of risk. If you would invest 23,434 in Vanguard Small Cap Index on August 26, 2024 and sell it today you would earn a total of 2,339 from holding Vanguard Small Cap Index or generate 9.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Overlay Shares Core
Performance |
| Timeline |
| Vanguard Small Cap |
| Overlay Shares Core |
Vanguard Small and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Overlay Shares
The main advantage of trading using opposite Vanguard Small and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.| Vanguard Small vs. Vanguard Mid Cap Index | Vanguard Small vs. Vanguard Small Cap Value | Vanguard Small vs. Vanguard FTSE Emerging | Vanguard Small vs. Vanguard Large Cap Index |
| Overlay Shares vs. iShares MSCI EAFE | Overlay Shares vs. iShares iBoxx Investment | Overlay Shares vs. iShares TIPS Bond | Overlay Shares vs. iShares 1 3 Year |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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