Correlation Between Vanguard Total and Small Cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Total and Small 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 Total and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Stock and Small Cap Core, you can compare the effects of market volatilities on Vanguard Total and Small 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 Total with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Small Cap.
Diversification Opportunities for Vanguard Total and Small Cap
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Vanguard Total 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 Total Stock are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Vanguard Total i.e., Vanguard Total and Small Cap go up and down completely randomly.
Pair Corralation between Vanguard Total and Small Cap
Assuming the 90 days horizon Vanguard Total Stock is expected to generate 0.68 times more return on investment than Small Cap. However, Vanguard Total Stock is 1.47 times less risky than Small Cap. It trades about 0.11 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.05 per unit of risk. If you would invest 9,442 in Vanguard Total Stock on August 26, 2024 and sell it today you would earn a total of 4,996 from holding Vanguard Total Stock or generate 52.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Total Stock vs. Small Cap Core
Performance |
| Timeline |
| Vanguard Total Stock |
| Small Cap Core |
Vanguard Total and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Total and Small Cap
The main advantage of trading using opposite Vanguard Total and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total position performs unexpectedly, Small 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 Small Cap will offset losses from the drop in Small Cap's long position.| Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Total Bond | Vanguard Total vs. Vanguard 500 Index | Vanguard Total vs. Vanguard Reit Index |
| Small Cap vs. Pace High Yield | Small Cap vs. Needham Aggressive Growth | Small Cap vs. Metropolitan West High | Small Cap vs. Pioneer High Income |
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 Stocks Directory module to find actively traded stocks across global markets.
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