Correlation Between Vanguard Small and Consumer Discretionary
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Consumer Discretionary 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 Consumer Discretionary 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 Consumer Discretionary Select, you can compare the effects of market volatilities on Vanguard Small and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Consumer Discretionary.
Diversification Opportunities for Vanguard Small and Consumer Discretionary
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Consumer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Vanguard Small i.e., Vanguard Small and Consumer Discretionary go up and down completely randomly.
Pair Corralation between Vanguard Small and Consumer Discretionary
Considering the 90-day investment horizon Vanguard Small is expected to generate 1.25 times less return on investment than Consumer Discretionary. But when comparing it to its historical volatility, Vanguard Small Cap Growth is 1.01 times less risky than Consumer Discretionary. It trades about 0.06 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 14,339 in Consumer Discretionary Select on August 23, 2024 and sell it today you would earn a total of 7,161 from holding Consumer Discretionary Select or generate 49.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Growth vs. Consumer Discretionary Select
Performance |
| Timeline |
| Vanguard Small Cap |
| Consumer Discretionary |
Vanguard Small and Consumer Discretionary Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Consumer Discretionary
The main advantage of trading using opposite Vanguard Small and Consumer Discretionary positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Consumer Discretionary 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 Consumer Discretionary will offset losses from the drop in Consumer Discretionary'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 |
| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary vs. Health Care Select |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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