Correlation Between Vanguard Small-cap and New Perspective
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and New Perspective 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 New Perspective 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 New Perspective Fund, you can compare the effects of market volatilities on Vanguard Small-cap and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and New Perspective.
Diversification Opportunities for Vanguard Small-cap and New Perspective
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VANGUARD and New is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and New Perspective go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and New Perspective
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.72 times more return on investment than New Perspective. However, Vanguard Small-cap is 1.72 times more volatile than New Perspective Fund. It trades about 0.25 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.0 per unit of risk. If you would invest 32,837 in Vanguard Small Cap Index on August 25, 2024 and sell it today you would earn a total of 2,255 from holding Vanguard Small Cap Index or generate 6.87% 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. New Perspective Fund
Performance |
| Timeline |
| Vanguard Small Cap |
| New Perspective |
Vanguard Small-cap and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and New Perspective
The main advantage of trading using opposite Vanguard Small-cap and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective's long position.| Vanguard Small-cap vs. Angel Oak Financial | Vanguard Small-cap vs. Prudential Jennison Financial | Vanguard Small-cap vs. Blackrock Financial Institutions | Vanguard Small-cap vs. Gabelli Global Financial |
| New Perspective vs. Vanguard Small Cap Index | New Perspective vs. Kinetics Small Cap | New Perspective vs. Ancorathelen Small Mid Cap | New Perspective vs. Massmutual Select Small |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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