Correlation Between Vanguard Small-cap and Vanguard Developed
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Vanguard Developed 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 Developed 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 Developed Markets, you can compare the effects of market volatilities on Vanguard Small-cap and Vanguard Developed 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 Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard Developed.
Diversification Opportunities for Vanguard Small-cap and Vanguard Developed
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and Vanguard is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Developed 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 Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Developed has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Developed go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Vanguard Developed
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.67 times more return on investment than Vanguard Developed. However, Vanguard Small-cap is 1.67 times more volatile than Vanguard Developed Markets. It trades about 0.31 of its potential returns per unit of risk. Vanguard Developed Markets is currently generating about -0.17 per unit of risk. If you would invest 11,455 in Vanguard Small Cap Index on August 29, 2024 and sell it today you would earn a total of 1,001 from holding Vanguard Small Cap Index or generate 8.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Vanguard Developed Markets
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Developed |
Vanguard Small-cap and Vanguard Developed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Vanguard Developed
The main advantage of trading using opposite Vanguard Small-cap and Vanguard Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Vanguard Developed 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 Developed will offset losses from the drop in Vanguard Developed'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 Developed vs. Vanguard Emerging Markets | Vanguard Developed vs. Vanguard Small Cap Index | Vanguard Developed vs. Vanguard Total Bond | Vanguard Developed vs. Vanguard Mid Cap Index |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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