Correlation Between Vanguard Small and Vanguard Value
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard Value 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 and Vanguard Value 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 Value Index, you can compare the effects of market volatilities on Vanguard Small and Vanguard Value 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 with a short position of Vanguard Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard Value.
Diversification Opportunities for Vanguard Small and Vanguard Value
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index and Vanguard Small 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 Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard Value go up and down completely randomly.
Pair Corralation between Vanguard Small and Vanguard Value
Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 1.49 times more return on investment than Vanguard Value. However, Vanguard Small is 1.49 times more volatile than Vanguard Value Index. It trades about 0.02 of its potential returns per unit of risk. Vanguard Value Index is currently generating about 0.03 per unit of risk. If you would invest 18,863 in Vanguard Small Cap Index on January 20, 2024 and sell it today you would earn a total of 2,213 from holding Vanguard Small Cap Index or generate 11.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. Vanguard Value Index
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Value Index |
Vanguard Small and Vanguard Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and Vanguard Value
The main advantage of trading using opposite Vanguard Small and Vanguard Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Vanguard Value 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 Value will offset losses from the drop in Vanguard Value's long position.| Vanguard Small vs. Vanguard Mid Cap Index | Vanguard Small vs. Vanguard Small Cap Value | Vanguard Small vs. Vanguard FTSE Emerging | Vanguard Small vs. Vanguard Large Cap Index |
| Vanguard Value vs. Vanguard Growth Index | Vanguard Value vs. Vanguard Small Cap Value | Vanguard Value vs. Vanguard Mid Cap Value | Vanguard Value vs. Vanguard Small Cap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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