Correlation Between SMALL CAPITALIZATION and VANGUARD EXPLORER

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

Diversification Opportunities for SMALL CAPITALIZATION and VANGUARD EXPLORER

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between SMALL and VANGUARD is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SMALL CAPITALIZATION PORTFOLIO and VANGUARD EXPLORER FUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VANGUARD EXPLORER FUND and SMALL CAPITALIZATION 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 SMALL CAPITALIZATION PORTFOLIO are associated (or correlated) with VANGUARD EXPLORER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VANGUARD EXPLORER FUND has no effect on the direction of SMALL CAPITALIZATION i.e., SMALL CAPITALIZATION and VANGUARD EXPLORER go up and down completely randomly.

Pair Corralation between SMALL CAPITALIZATION and VANGUARD EXPLORER

If you would invest  0.00  in SMALL CAPITALIZATION PORTFOLIO on September 7, 2022 and sell it today you would earn a total of  0.00  from holding SMALL CAPITALIZATION PORTFOLIO or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.2%
ValuesDaily Returns

SMALL CAPITALIZATION PORTFOLIO  vs.  VANGUARD EXPLORER FUND

 Performance (%) 
       Timeline  
SMALL CAPITALIZATION 
SMALL Performance
0 of 100
Over the last 90 days SMALL CAPITALIZATION PORTFOLIO has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, SMALL CAPITALIZATION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
VANGUARD EXPLORER FUND 
VANGUARD Performance
0 of 100
Over the last 90 days VANGUARD EXPLORER FUND has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, VANGUARD EXPLORER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

VANGUARD Price Channel

SMALL CAPITALIZATION and VANGUARD EXPLORER Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SMALL CAPITALIZATION and VANGUARD EXPLORER

The main advantage of trading using opposite SMALL CAPITALIZATION and VANGUARD EXPLORER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMALL CAPITALIZATION position performs unexpectedly, VANGUARD EXPLORER 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 EXPLORER will offset losses from the drop in VANGUARD EXPLORER's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SMALL CAPITALIZATION as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SMALL CAPITALIZATION's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SMALL CAPITALIZATION's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SMALL CAPITALIZATION PORTFOLIO.
The idea behind SMALL CAPITALIZATION PORTFOLIO and VANGUARD EXPLORER FUND 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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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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