Correlation Between Vanguard European and Small Cap
Can any of the company-specific risk be diversified away by investing in both Vanguard European 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 European 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 European Stock and Small Cap Stock, you can compare the effects of market volatilities on Vanguard European 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 European with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard European and Small Cap.
Diversification Opportunities for Vanguard European and Small Cap
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vanguard and Small is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock 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 European 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 European Stock 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 European i.e., Vanguard European and Small Cap go up and down completely randomly.
Pair Corralation between Vanguard European and Small Cap
Assuming the 90 days horizon Vanguard European Stock is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard European Stock is 2.01 times less risky than Small Cap. The mutual fund trades about -0.3 of its potential returns per unit of risk. The Small Cap Stock is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,419 in Small Cap Stock on August 29, 2024 and sell it today you would earn a total of 94.00 from holding Small Cap Stock or generate 6.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard European Stock vs. Small Cap Stock
Performance |
| Timeline |
| Vanguard European Stock |
| Small Cap Stock |
Vanguard European and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard European and Small Cap
The main advantage of trading using opposite Vanguard European and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard European 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 European vs. Vanguard Materials Index | Vanguard European vs. Vanguard Limited Term Tax Exempt | Vanguard European vs. Vanguard Limited Term Tax Exempt | Vanguard European vs. Vanguard Global Minimum |
| Small Cap vs. Income Fund Income | Small Cap vs. Usaa Nasdaq 100 | Small Cap vs. Victory Diversified Stock | Small Cap vs. Intermediate Term Bond Fund |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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