Correlation Between Vanguard Small-cap and Vanguard Primecap
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Vanguard Primecap 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 Primecap 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 Primecap E, you can compare the effects of market volatilities on Vanguard Small-cap and Vanguard Primecap 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 Primecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard Primecap.
Diversification Opportunities for Vanguard Small-cap and Vanguard Primecap
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Primecap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Primecap 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 Primecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Primecap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Primecap go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Vanguard Primecap
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.17 times more return on investment than Vanguard Primecap. However, Vanguard Small-cap is 1.17 times more volatile than Vanguard Primecap E. It trades about 0.07 of its potential returns per unit of risk. Vanguard Primecap E is currently generating about 0.07 per unit of risk. If you would invest 9,642 in Vanguard Small Cap Index on August 26, 2024 and sell it today you would earn a total of 2,516 from holding Vanguard Small Cap Index or generate 26.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Vanguard Primecap E
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Primecap |
Vanguard Small-cap and Vanguard Primecap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Vanguard Primecap
The main advantage of trading using opposite Vanguard Small-cap and Vanguard Primecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Vanguard Primecap 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 Primecap will offset losses from the drop in Vanguard Primecap'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 Primecap vs. Vanguard Total Bond | Vanguard Primecap vs. Vanguard Small Cap Index | Vanguard Primecap vs. Vanguard Mid Cap Index | Vanguard Primecap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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