Correlation Between Vanguard Small-cap and Vanguard Institutional
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Vanguard Institutional 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 Vanguard Institutional 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 Vanguard Institutional Index, you can compare the effects of market volatilities on Vanguard Small-cap and Vanguard Institutional 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 Vanguard Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard Institutional.
Diversification Opportunities for Vanguard Small-cap and Vanguard Institutional
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Institutional Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Institutional 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 Vanguard Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Institutional has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Institutional go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Vanguard Institutional
Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.23 times less return on investment than Vanguard Institutional. In addition to that, Vanguard Small-cap is 1.37 times more volatile than Vanguard Institutional Index. It trades about 0.07 of its total potential returns per unit of risk. Vanguard Institutional Index is currently generating about 0.11 per unit of volatility. If you would invest 31,559 in Vanguard Institutional Index on August 27, 2024 and sell it today you would earn a total of 17,651 from holding Vanguard Institutional Index or generate 55.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Vanguard Institutional Index
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Institutional |
Vanguard Small-cap and Vanguard Institutional Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Vanguard Institutional
The main advantage of trading using opposite Vanguard Small-cap and Vanguard Institutional positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Vanguard Institutional 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 Institutional will offset losses from the drop in Vanguard Institutional'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 |
| Vanguard Institutional vs. Vanguard Total Bond | Vanguard Institutional vs. Vanguard Small Cap Index | Vanguard Institutional vs. Vanguard Mid Cap Index | Vanguard Institutional vs. Vanguard Extended Market |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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