Correlation Between Vanguard 500 and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard 500 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 500 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 500 Index and Vanguard Small Cap Index, you can compare the effects of market volatilities on Vanguard 500 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 500 with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Vanguard Small-cap.
Diversification Opportunities for Vanguard 500 and Vanguard Small-cap
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between VANGUARD and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard 500 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 500 Index 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 500 i.e., Vanguard 500 and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Vanguard 500 and Vanguard Small-cap
Assuming the 90 days horizon Vanguard 500 is expected to generate 2.49 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, Vanguard 500 Index is 1.4 times less risky than Vanguard Small-cap. It trades about 0.12 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 11,341 in Vanguard Small Cap Index on August 24, 2024 and sell it today you would earn a total of 625.00 from holding Vanguard Small Cap Index or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard 500 Index vs. Vanguard Small Cap Index
Performance |
| Timeline |
| Vanguard 500 Index |
| Vanguard Small Cap |
Vanguard 500 and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard 500 and Vanguard Small-cap
The main advantage of trading using opposite Vanguard 500 and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 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 500 vs. Vanguard Total Stock | Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond |
| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard 500 Index | Vanguard Small-cap vs. Vanguard Emerging Markets | Vanguard Small-cap vs. Vanguard Reit Index |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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