Correlation Between Vanguard Small-cap and Vanguard International
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Vanguard International 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 Vanguard International 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 Vanguard International Dividend, you can compare the effects of market volatilities on Vanguard Small-cap and Vanguard International 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 Vanguard International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard International.
Diversification Opportunities for Vanguard Small-cap and Vanguard International
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Vanguard and Vanguard is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard International Dividen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International 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 Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard International go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Vanguard International
Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.73 times more return on investment than Vanguard International. However, Vanguard Small-cap is 1.73 times more volatile than Vanguard International Dividend. It trades about 0.39 of its potential returns per unit of risk. Vanguard International Dividend is currently generating about 0.03 per unit of risk. If you would invest 11,289 in Vanguard Small Cap Index on September 1, 2024 and sell it today you would earn a total of 1,153 from holding Vanguard Small Cap Index or generate 10.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Vanguard International Dividen
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard International |
Vanguard Small-cap and Vanguard International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Vanguard International
The main advantage of trading using opposite Vanguard Small-cap and Vanguard International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Vanguard International 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 Vanguard International will offset losses from the drop in Vanguard International'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 |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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