Correlation Between Vanguard Small and US Treasury
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and US Treasury 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 US Treasury 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 US Treasury 3, you can compare the effects of market volatilities on Vanguard Small and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and US Treasury.
Diversification Opportunities for Vanguard Small and US Treasury
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and UTRE is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and US Treasury 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 3 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 US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 3 has no effect on the direction of Vanguard Small i.e., Vanguard Small and US Treasury go up and down completely randomly.
Pair Corralation between Vanguard Small and US Treasury
Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 6.11 times more return on investment than US Treasury. However, Vanguard Small is 6.11 times more volatile than US Treasury 3. It trades about 0.11 of its potential returns per unit of risk. US Treasury 3 is currently generating about 0.09 per unit of risk. If you would invest 19,650 in Vanguard Small Cap Index on September 2, 2024 and sell it today you would earn a total of 6,401 from holding Vanguard Small Cap Index or generate 32.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. US Treasury 3
Performance |
| Timeline |
| Vanguard Small Cap |
| US Treasury 3 |
Vanguard Small and US Treasury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and US Treasury
The main advantage of trading using opposite Vanguard Small and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, US Treasury 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 US Treasury will offset losses from the drop in US Treasury's 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 |
| US Treasury vs. US Treasury 5 | US Treasury vs. US Treasury 30 | US Treasury vs. US Treasury 7 | US Treasury vs. US Treasury 20 |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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