Correlation Between Vaughan Nelson and Small Cap

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Can any of the company-specific risk be diversified away by investing in both Vaughan Nelson 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 Vaughan Nelson and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vaughan Nelson Small and Small Cap Equity, you can compare the effects of market volatilities on Vaughan Nelson 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 Vaughan Nelson with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vaughan Nelson and Small Cap.

Diversification Opportunities for Vaughan Nelson and Small Cap

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Vaughan and Small is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vaughan Nelson Small and SMALL CAP EQUITY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Vaughan Nelson 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 Vaughan Nelson Small 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 Equity has no effect on the direction of Vaughan Nelson i.e., Vaughan Nelson and Small Cap go up and down completely randomly.

Pair Corralation between Vaughan Nelson and Small Cap

Assuming the 90 days horizon Vaughan Nelson Small is expected to generate 0.92 times more return on investment than Small Cap. However, Vaughan Nelson Small is 1.09 times less risky than Small Cap. It trades about 0.28 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.17 per unit of risk. If you would invest  2,040  in Vaughan Nelson Small on December 29, 2023 and sell it today you would earn a total of  100.00  from holding Vaughan Nelson Small or generate 4.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Vaughan Nelson Small  vs.  SMALL CAP EQUITY

 Performance 
       Timeline  
Vaughan Nelson Small 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vaughan Nelson Small are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile basic indicators, Vaughan Nelson may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Small Cap Equity 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vaughan Nelson and Small Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vaughan Nelson and Small Cap

The main advantage of trading using opposite Vaughan Nelson and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vaughan Nelson 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.
The idea behind Vaughan Nelson Small and Small Cap Equity 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.
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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