Correlation Between Vanguard Small-cap and Pace Smallmedium
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Pace Smallmedium 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 Pace Smallmedium 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 Pace Smallmedium Value, you can compare the effects of market volatilities on Vanguard Small-cap and Pace Smallmedium 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 Pace Smallmedium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Pace Smallmedium.
Diversification Opportunities for Vanguard Small-cap and Pace Smallmedium
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Pace is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Pace Smallmedium Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Smallmedium Value 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 Pace Smallmedium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Smallmedium Value has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Pace Smallmedium go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Pace Smallmedium
Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 0.95 times more return on investment than Pace Smallmedium. However, Vanguard Small Cap Value is 1.05 times less risky than Pace Smallmedium. It trades about 0.12 of its potential returns per unit of risk. Pace Smallmedium Value is currently generating about 0.09 per unit of risk. If you would invest 4,437 in Vanguard Small Cap Value on September 1, 2024 and sell it today you would earn a total of 741.00 from holding Vanguard Small Cap Value or generate 16.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. Pace Smallmedium Value
Performance |
| Timeline |
| Vanguard Small Cap |
| Pace Smallmedium Value |
Vanguard Small-cap and Pace Smallmedium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Pace Smallmedium
The main advantage of trading using opposite Vanguard Small-cap and Pace Smallmedium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Pace Smallmedium 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 Pace Smallmedium will offset losses from the drop in Pace Smallmedium's long position.The idea behind Vanguard Small Cap Value and Pace Smallmedium Value 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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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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