Correlation Between Vanguard Small-cap and Wasatch Small
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Wasatch Small 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 Wasatch Small 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 Wasatch Small Cap, you can compare the effects of market volatilities on Vanguard Small-cap and Wasatch Small 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 Wasatch Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Wasatch Small.
Diversification Opportunities for Vanguard Small-cap and Wasatch Small
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Wasatch is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Wasatch Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Small Cap 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 Wasatch Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Small Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Wasatch Small go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Wasatch Small
Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.18 times less return on investment than Wasatch Small. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.37 times less risky than Wasatch Small. It trades about 0.29 of its potential returns per unit of risk. Wasatch Small Cap is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 1,160 in Wasatch Small Cap on August 27, 2024 and sell it today you would earn a total of 106.00 from holding Wasatch Small Cap or generate 9.14% 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. Wasatch Small Cap
Performance |
| Timeline |
| Vanguard Small Cap |
| Wasatch Small Cap |
Vanguard Small-cap and Wasatch Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Wasatch Small
The main advantage of trading using opposite Vanguard Small-cap and Wasatch Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Wasatch Small 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 Wasatch Small will offset losses from the drop in Wasatch Small'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 |
| Wasatch Small vs. Old Westbury Short Term | Wasatch Small vs. Jhancock Short Duration | Wasatch Small vs. Touchstone Ultra Short | Wasatch Small vs. Siit Ultra Short |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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