Correlation Between Vanguard Small and Vanguard Extended
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard Extended 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 Vanguard Extended into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Growth and Vanguard Extended Market, you can compare the effects of market volatilities on Vanguard Small and Vanguard Extended 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 Vanguard Extended. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard Extended.
Diversification Opportunities for Vanguard Small and Vanguard Extended
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market 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 Growth are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard Extended go up and down completely randomly.
Pair Corralation between Vanguard Small and Vanguard Extended
Considering the 90-day investment horizon Vanguard Small is expected to generate 1.02 times less return on investment than Vanguard Extended. But when comparing it to its historical volatility, Vanguard Small Cap Growth is 1.09 times less risky than Vanguard Extended. It trades about 0.32 of its potential returns per unit of risk. Vanguard Extended Market is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 18,330 in Vanguard Extended Market on August 24, 2024 and sell it today you would earn a total of 1,670 from holding Vanguard Extended Market or generate 9.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Vanguard Small Cap Growth vs. Vanguard Extended Market
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Extended Market |
Vanguard Small and Vanguard Extended Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Vanguard Extended
The main advantage of trading using opposite Vanguard Small and Vanguard Extended positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Vanguard Extended 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 Extended will offset losses from the drop in Vanguard Extended's long position.| Vanguard Small vs. First Trust Mid | Vanguard Small vs. First Trust Small | Vanguard Small vs. First Trust Small | Vanguard Small vs. First Trust Mid |
| Vanguard Extended vs. Vanguard Large Cap Index | Vanguard Extended vs. Vanguard Small Cap Growth | Vanguard Extended vs. Vanguard Mid Cap Index | Vanguard Extended vs. Vanguard Mid Cap Growth |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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