Correlation Between Vanguard Small-cap and Northern Small
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Northern Small 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 Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Value and Northern Small Cap, you can compare the effects of market volatilities on Vanguard Small-cap and Northern Small 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 Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Northern Small.
Diversification Opportunities for Vanguard Small-cap and Northern Small
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Northern is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap 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 Value are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Northern Small go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Northern Small
Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.18 times less return on investment than Northern Small. But when comparing it to its historical volatility, Vanguard Small Cap Value is 1.44 times less risky than Northern Small. It trades about 0.24 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,075 in Northern Small Cap on August 25, 2024 and sell it today you would earn a total of 164.00 from holding Northern Small Cap or generate 7.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. Northern Small Cap
Performance |
| Timeline |
| Vanguard Small Cap |
| Northern Small Cap |
Vanguard Small-cap and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Northern Small
The main advantage of trading using opposite Vanguard Small-cap and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Northern Small 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 Northern Small will offset losses from the drop in Northern Small's long position.| Vanguard Small-cap vs. Dunham High Yield | Vanguard Small-cap vs. Artisan High Income | Vanguard Small-cap vs. American Century High | Vanguard Small-cap vs. Jpmorgan High Yield |
| Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Us Small Cap | Northern Small vs. Us Targeted Value |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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