Correlation Between Vanguard International and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard International and Vanguard 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 International and Vanguard Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard International Growth and Vanguard Small Cap Growth, you can compare the effects of market volatilities on Vanguard International and Vanguard 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 International with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard International and Vanguard Small-cap.
Diversification Opportunities for Vanguard International and Vanguard Small-cap
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vanguard and Vanguard is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International Growth and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard International 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 International Growth are associated (or correlated) with Vanguard 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 Vanguard Small Cap has no effect on the direction of Vanguard International i.e., Vanguard International and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Vanguard International and Vanguard Small-cap
Assuming the 90 days horizon Vanguard International is expected to generate 7.43 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, Vanguard International Growth is 1.11 times less risky than Vanguard Small-cap. It trades about 0.02 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,079 in Vanguard Small Cap Growth on August 26, 2024 and sell it today you would earn a total of 1,290 from holding Vanguard Small Cap Growth or generate 18.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard International Growth vs. Vanguard Small Cap Growth
Performance |
| Timeline |
| Vanguard International |
| Vanguard Small Cap |
Vanguard International and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard International and Vanguard Small-cap
The main advantage of trading using opposite Vanguard International and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International position performs unexpectedly, Vanguard 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 Vanguard Small-cap will offset losses from the drop in Vanguard Small-cap's long position.The idea behind Vanguard International Growth and Vanguard Small Cap Growth 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.
| Vanguard Small-cap vs. Vanguard International Growth | Vanguard Small-cap vs. Vanguard Windsor Ii | Vanguard Small-cap vs. Vanguard Primecap Fund | Vanguard Small-cap vs. Vanguard 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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