Correlation Between Vanguard Small-cap and Madison Small
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Madison 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 Madison 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 Index and Madison Small Cap, you can compare the effects of market volatilities on Vanguard Small-cap and Madison 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 Madison Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Madison Small.
Diversification Opportunities for Vanguard Small-cap and Madison Small
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Madison is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Madison Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison 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 Index are associated (or correlated) with Madison Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Small Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Madison Small go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Madison Small
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.39 times more return on investment than Madison Small. However, Vanguard Small Cap Index is 2.59 times less risky than Madison Small. It trades about 0.19 of its potential returns per unit of risk. Madison Small Cap is currently generating about -0.14 per unit of risk. If you would invest 11,687 in Vanguard Small Cap Index on October 25, 2024 and sell it today you would earn a total of 355.00 from holding Vanguard Small Cap Index or generate 3.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.74% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Madison Small Cap
Performance |
| Timeline |
| Vanguard Small Cap |
| Madison Small Cap |
Vanguard Small-cap and Madison Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Madison Small
The main advantage of trading using opposite Vanguard Small-cap and Madison Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Madison 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 Madison Small will offset losses from the drop in Madison Small's long position.| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard Total Bond | Vanguard Small-cap vs. Vanguard Institutional Index | Vanguard Small-cap vs. Vanguard Total International |
| Madison Small vs. John Hancock Money | Madison Small vs. Elfun Government Money | Madison Small vs. Voya Government Money | Madison Small vs. Edward Jones Money |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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