diversifiable risk of combining Oppenheimer Main 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 Oppenheimer Main Street and Vanguard Small Cap Index, you can compare the effects of market volatilities on Oppenheimer Main 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 Oppenheimer Main with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oppenheimer Main and Vanguard Small-cap.
Diversification Opportunities for Oppenheimer Main and Vanguard Small-cap
Pair Corralation between Oppenheimer Main and Vanguard Small-cap
Assuming the 90 days horizon Oppenheimer Main is expected to generate 1.3 times less return on investment than Vanguard Small-cap. In addition to that, Oppenheimer Main is 1.1 times more volatile than Vanguard Small Cap Index. It trades about 0.06 of its total potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.09 per unit of volatility. If you would invest 10,152 in Vanguard Small Cap Index on December 2, 2023 and sell it today you would earn a total of 373.00 from holding Vanguard Small Cap Index or generate 3.67% return on investment over 90 days.
Oppenheimer Main Street vs. VANGUARD SMALL-CAP INDEX
Oppenheimer Main and Vanguard Small-cap Volatility Contrast
Pair Trading with Oppenheimer Main and Vanguard Small-capThe main advantage of trading using opposite Oppenheimer Main and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oppenheimer Main 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 Oppenheimer Main Street and Vanguard Small Cap Index 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.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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