Correlation Between Vanguard Energy and Small Cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Energy and 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 Energy and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Energy Index and Small Cap Stock, you can compare the effects of market volatilities on Vanguard Energy and 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 Energy with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Energy and Small Cap.
Diversification Opportunities for Vanguard Energy and Small Cap
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Small is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Vanguard Energy 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 Energy Index are associated (or correlated) with 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 Small Cap Stock has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Small Cap go up and down completely randomly.
Pair Corralation between Vanguard Energy and Small Cap
Assuming the 90 days horizon Vanguard Energy Index is expected to generate 0.68 times more return on investment than Small Cap. However, Vanguard Energy Index is 1.47 times less risky than Small Cap. It trades about 0.97 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.13 per unit of risk. If you would invest 5,918 in Vanguard Energy Index on October 22, 2024 and sell it today you would earn a total of 716.00 from holding Vanguard Energy Index or generate 12.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Energy Index vs. Small Cap Stock
Performance |
| Timeline |
| Vanguard Energy Index |
| Small Cap Stock |
Vanguard Energy and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Energy and Small Cap
The main advantage of trading using opposite Vanguard Energy and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Energy position performs unexpectedly, 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 Small Cap will offset losses from the drop in Small Cap's long position.| Vanguard Energy vs. Vanguard Financials Index | Vanguard Energy vs. Vanguard Utilities Index | Vanguard Energy vs. Vanguard Materials Index | Vanguard Energy vs. Vanguard Sumer Staples |
| Small Cap vs. Vanguard Energy Index | Small Cap vs. Oil Gas Ultrasector | Small Cap vs. World Energy Fund | Small Cap vs. Thrivent Natural Resources |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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