Correlation Between Vanguard Small-cap and Paradigm Micro-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Paradigm Micro-cap 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 Paradigm Micro-cap 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 Paradigm Micro Cap Fund, you can compare the effects of market volatilities on Vanguard Small-cap and Paradigm Micro-cap 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 Paradigm Micro-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Paradigm Micro-cap.
Diversification Opportunities for Vanguard Small-cap and Paradigm Micro-cap
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Paradigm is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Paradigm Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Micro 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 Paradigm Micro-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Micro Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Paradigm Micro-cap go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Paradigm Micro-cap
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.73 times more return on investment than Paradigm Micro-cap. However, Vanguard Small Cap Index is 1.36 times less risky than Paradigm Micro-cap. It trades about 0.09 of its potential returns per unit of risk. Paradigm Micro Cap Fund is currently generating about 0.04 per unit of risk. If you would invest 10,443 in Vanguard Small Cap Index on September 1, 2024 and sell it today you would earn a total of 1,999 from holding Vanguard Small Cap Index or generate 19.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.47% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Paradigm Micro Cap Fund
Performance |
| Timeline |
| Vanguard Small Cap |
| Paradigm Micro Cap |
Vanguard Small-cap and Paradigm Micro-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Paradigm Micro-cap
The main advantage of trading using opposite Vanguard Small-cap and Paradigm Micro-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Paradigm Micro-cap 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 Paradigm Micro-cap will offset losses from the drop in Paradigm Micro-cap's long position.| Vanguard Small-cap vs. Vanguard Mid Cap Index | Vanguard Small-cap vs. Vanguard 500 Index | Vanguard Small-cap vs. Vanguard Emerging Markets | Vanguard Small-cap vs. Vanguard Reit Index |
| Paradigm Micro-cap vs. Paradigm Select Fund | Paradigm Micro-cap vs. Needham Aggressive Growth | Paradigm Micro-cap vs. Ultramid Cap Profund Ultramid Cap | Paradigm Micro-cap vs. Towle Deep Value |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |