Correlation Between Vanguard Emerging and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Emerging and Vanguard Small-cap 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 Emerging and Vanguard Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Emerging Markets and Vanguard Small Cap Value, you can compare the effects of market volatilities on Vanguard Emerging and Vanguard Small-cap 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 Emerging with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Emerging and Vanguard Small-cap.
Diversification Opportunities for Vanguard Emerging and Vanguard Small-cap
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Vanguard and Vanguard is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Emerging Markets and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard Emerging 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 Emerging Markets are associated (or correlated) with Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Vanguard Emerging i.e., Vanguard Emerging and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Vanguard Emerging and Vanguard Small-cap
Assuming the 90 days horizon Vanguard Emerging is expected to generate 2.18 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, Vanguard Emerging Markets is 1.4 times less risky than Vanguard Small-cap. It trades about 0.03 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,957 in Vanguard Small Cap Value on October 20, 2024 and sell it today you would earn a total of 1,834 from holding Vanguard Small Cap Value or generate 26.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Emerging Markets vs. Vanguard Small Cap Value
Performance |
| Timeline |
| Vanguard Emerging Markets |
| Vanguard Small Cap |
Vanguard Emerging and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Emerging and Vanguard Small-cap
The main advantage of trading using opposite Vanguard Emerging and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Emerging position performs unexpectedly, Vanguard Small-cap 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 Small-cap will offset losses from the drop in Vanguard Small-cap's long position.| Vanguard Emerging vs. Vanguard Developed Markets | Vanguard Emerging vs. Vanguard Reit Index | Vanguard Emerging vs. Vanguard Small Cap Index | Vanguard Emerging vs. Vanguard European Stock |
| Vanguard Small-cap vs. Vanguard Mid Cap Value | Vanguard Small-cap vs. Vanguard Value Index | Vanguard Small-cap vs. Vanguard Small Cap Growth | Vanguard Small-cap vs. Vanguard Emerging Markets |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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