Correlation Between Vanguard Small-cap and Gotham Enhanced

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Gotham Enhanced 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-cap and Gotham Enhanced 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 Gotham Enhanced 500, you can compare the effects of market volatilities on Vanguard Small-cap and Gotham Enhanced 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-cap with a short position of Gotham Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Gotham Enhanced.

Diversification Opportunities for Vanguard Small-cap and Gotham Enhanced

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Gotham is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Gotham Enhanced 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Enhanced 500 and Vanguard Small-cap 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 Gotham Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Enhanced 500 has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Gotham Enhanced go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Gotham Enhanced

Assuming the 90 days horizon Vanguard Small Cap Growth is expected to generate 1.64 times more return on investment than Gotham Enhanced. However, Vanguard Small-cap is 1.64 times more volatile than Gotham Enhanced 500. It trades about 0.45 of its potential returns per unit of risk. Gotham Enhanced 500 is currently generating about 0.32 per unit of risk. If you would invest  7,563  in Vanguard Small Cap Growth on September 3, 2024 and sell it today you would earn a total of  904.00  from holding Vanguard Small Cap Growth or generate 11.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Small Cap Growth  vs.  Gotham Enhanced 500

 Performance 
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.
Gotham Enhanced 500 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Enhanced 500 are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gotham Enhanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Small-cap and Gotham Enhanced Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Small-cap and Gotham Enhanced

The main advantage of trading using opposite Vanguard Small-cap and Gotham Enhanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Gotham Enhanced 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 Gotham Enhanced will offset losses from the drop in Gotham Enhanced's long position.
The idea behind Vanguard Small Cap Growth and Gotham Enhanced 500 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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