Correlation Between Vanguard Small-cap and American Beacon
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and American Beacon 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 American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Value and American Beacon Small, you can compare the effects of market volatilities on Vanguard Small-cap and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and American Beacon.
Diversification Opportunities for Vanguard Small-cap and American Beacon
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small 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 Value are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Small has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and American Beacon go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and American Beacon
Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.62 times less return on investment than American Beacon. But when comparing it to its historical volatility, Vanguard Small Cap Value is 1.29 times less risky than American Beacon. It trades about 0.15 of its potential returns per unit of risk. American Beacon Small is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,672 in American Beacon Small on August 24, 2024 and sell it today you would earn a total of 177.00 from holding American Beacon Small or generate 6.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. American Beacon Small
Performance |
| Timeline |
| Vanguard Small Cap |
| American Beacon Small |
Vanguard Small-cap and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and American Beacon
The main advantage of trading using opposite Vanguard Small-cap and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Vanguard Small-cap vs. Lebenthal Lisanti Small | Vanguard Small-cap vs. Hodges Small Cap | Vanguard Small-cap vs. Oberweis Small Cap Opportunities | Vanguard Small-cap vs. Aegis Value Fund |
| American Beacon vs. American Beacon International | American Beacon vs. American Beacon Large | American Beacon vs. Fidelity Low Priced Stock | American Beacon vs. Europacific Growth Fund |
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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