Correlation Between Vanguard Materials and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials 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 Materials 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 Materials Index and Vanguard Small Cap Growth, you can compare the effects of market volatilities on Vanguard Materials 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 Materials with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Vanguard Small-cap.
Diversification Opportunities for Vanguard Materials and Vanguard Small-cap
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard Materials 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 Materials 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 Materials i.e., Vanguard Materials and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Vanguard Materials and Vanguard Small-cap
Assuming the 90 days horizon Vanguard Materials Index is expected to under-perform the Vanguard Small-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Materials Index is 1.41 times less risky than Vanguard Small-cap. The mutual fund trades about 0.0 of its potential returns per unit of risk. The Vanguard Small Cap Growth is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 9,405 in Vanguard Small Cap Growth on August 30, 2024 and sell it today you would earn a total of 1,140 from holding Vanguard Small Cap Growth or generate 12.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Materials Index vs. Vanguard Small Cap Growth
Performance |
| Timeline |
| Vanguard Materials Index |
| Vanguard Small Cap |
Vanguard Materials and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Materials and Vanguard Small-cap
The main advantage of trading using opposite Vanguard Materials and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials 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 Materials vs. Vanguard Emerging Markets | Vanguard Materials vs. Vanguard Total International | Vanguard Materials vs. Vanguard Reit Index | Vanguard Materials vs. Vanguard Industrials Index |
| Vanguard Small-cap vs. Vanguard Mid Cap Growth | Vanguard Small-cap vs. Vanguard Small Cap Value | Vanguard Small-cap vs. Vanguard Growth Index | Vanguard Small-cap vs. Vanguard Mid Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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