Correlation Between Vanguard Small and Teton Westwood

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Teton Westwood 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 Teton Westwood 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 Teton Westwood Mighty, you can compare the effects of market volatilities on Vanguard Small and Teton Westwood 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 Teton Westwood. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Teton Westwood.

Diversification Opportunities for Vanguard Small and Teton Westwood

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Teton is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Teton Westwood Mighty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teton Westwood Mighty 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 Teton Westwood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teton Westwood Mighty has no effect on the direction of Vanguard Small i.e., Vanguard Small and Teton Westwood go up and down completely randomly.

Pair Corralation between Vanguard Small and Teton Westwood

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.46 times more return on investment than Teton Westwood. However, Vanguard Small Cap Index is 2.15 times less risky than Teton Westwood. It trades about 0.14 of its potential returns per unit of risk. Teton Westwood Mighty is currently generating about -0.02 per unit of risk. If you would invest  29,681  in Vanguard Small Cap Index on September 12, 2024 and sell it today you would earn a total of  5,817  from holding Vanguard Small Cap Index or generate 19.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Small Cap Index  vs.  Teton Westwood Mighty

 Performance 
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.
Teton Westwood Mighty 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Teton Westwood Mighty are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Teton Westwood may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Small and Teton Westwood Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Small and Teton Westwood

The main advantage of trading using opposite Vanguard Small and Teton Westwood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Teton Westwood 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 Teton Westwood will offset losses from the drop in Teton Westwood's long position.
The idea behind Vanguard Small Cap Index and Teton Westwood Mighty pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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