Correlation Between Vanguard Extended and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Vanguard Extended and Vanguard 500 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 Extended and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Extended Market and Vanguard 500 Index, you can compare the effects of market volatilities on Vanguard Extended and Vanguard 500 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 Extended with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Vanguard 500.
Diversification Opportunities for Vanguard Extended and Vanguard 500
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Vanguard is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Vanguard Extended 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 Extended Market are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Vanguard 500 go up and down completely randomly.
Pair Corralation between Vanguard Extended and Vanguard 500
Assuming the 90 days horizon Vanguard Extended is expected to generate 1.38 times less return on investment than Vanguard 500. In addition to that, Vanguard Extended is 1.26 times more volatile than Vanguard 500 Index. It trades about 0.09 of its total potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.15 per unit of volatility. If you would invest 45,839 in Vanguard 500 Index on February 19, 2024 and sell it today you would earn a total of 3,186 from holding Vanguard 500 Index or generate 6.95% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard Extended Market vs. Vanguard 500 Index
Performance |
Timeline |
Vanguard Extended Market |
Vanguard 500 Index |
Vanguard Extended and Vanguard 500 Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard Extended and Vanguard 500
The main advantage of trading using opposite Vanguard Extended and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.Vanguard Extended vs. Vanguard Total International | Vanguard Extended vs. Vanguard Total Bond | Vanguard Extended vs. Vanguard Institutional Index | Vanguard Extended vs. Vanguard Institutional Index |
Vanguard 500 vs. Wcm Focused International | Vanguard 500 vs. Artisan International Value | Vanguard 500 vs. Wilmington Large Cap Strategy | Vanguard 500 vs. Harbor Large Cap |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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