Correlation Between Vanguard Small and Vanguard Strategic
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard Strategic 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 Vanguard Strategic 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 Strategic Small Cap, you can compare the effects of market volatilities on Vanguard Small and Vanguard Strategic 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 Vanguard Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard Strategic.
Diversification Opportunities for Vanguard Small and Vanguard Strategic
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 Strategic Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Strategic 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 Vanguard Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Strategic has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard Strategic go up and down completely randomly.
Pair Corralation between Vanguard Small and Vanguard Strategic
Assuming the 90 days horizon Vanguard Small is expected to generate 1.12 times less return on investment than Vanguard Strategic. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.16 times less risky than Vanguard Strategic. It trades about 0.12 of its potential returns per unit of risk. Vanguard Strategic Small Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,172 in Vanguard Strategic Small Cap on September 1, 2024 and sell it today you would earn a total of 1,514 from holding Vanguard Strategic Small Cap or generate 47.73% 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 Strategic Small Cap
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Strategic |
Vanguard Small and Vanguard Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Vanguard Strategic
The main advantage of trading using opposite Vanguard Small and Vanguard Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Vanguard Strategic 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 Strategic will offset losses from the drop in Vanguard Strategic's 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 |
| Vanguard Strategic vs. Vanguard Explorer Value | Vanguard Strategic vs. Vanguard Strategic Equity | Vanguard Strategic vs. Vanguard Diversified Equity | Vanguard Strategic vs. Vanguard Mid Cap |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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