Correlation Between Vanguard Small and Northeast Investors
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Northeast Investors 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 and Northeast Investors 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 Northeast Investors Trust, you can compare the effects of market volatilities on Vanguard Small and Northeast Investors 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 with a short position of Northeast Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Northeast Investors.
Diversification Opportunities for Vanguard Small and Northeast Investors
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vanguard and Northeast is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Northeast Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Investors Trust and Vanguard Small 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 Northeast Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Investors Trust has no effect on the direction of Vanguard Small i.e., Vanguard Small and Northeast Investors go up and down completely randomly.
Pair Corralation between Vanguard Small and Northeast Investors
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 3.62 times more return on investment than Northeast Investors. However, Vanguard Small is 3.62 times more volatile than Northeast Investors Trust. It trades about 0.07 of its potential returns per unit of risk. Northeast Investors Trust is currently generating about 0.11 per unit of risk. If you would invest 8,536 in Vanguard Small Cap Index on September 14, 2024 and sell it today you would earn a total of 3,741 from holding Vanguard Small Cap Index or generate 43.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Northeast Investors Trust
Performance |
| Timeline |
| Vanguard Small Cap |
| Northeast Investors Trust |
Vanguard Small and Northeast Investors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Northeast Investors
The main advantage of trading using opposite Vanguard Small and Northeast Investors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Northeast Investors 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 Northeast Investors will offset losses from the drop in Northeast Investors' long position.| Vanguard Small vs. Vanguard Mid Cap Index | Vanguard Small vs. Vanguard Total Bond | Vanguard Small vs. Vanguard Institutional Index | Vanguard Small vs. Vanguard Total International |
| Northeast Investors vs. Wasatch Greater China | Northeast Investors vs. American Funds Global | Northeast Investors vs. Vanguard Small Cap Index | Northeast Investors vs. American Funds Tax Advantaged |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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