Correlation Between Small Capitalization and Vanguard Small

Can any of the company-specific risk be diversified away by investing in both Small Capitalization and Vanguard Small 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 Small 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 Small Cap Growth, you can compare the effects of market volatilities on Small Capitalization and Vanguard Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Capitalization and Vanguard Small.

Diversification Opportunities for Small Capitalization and Vanguard Small

0.98

Correlation Coefficient

Small Capitalization  Vanguard Small

Almost no diversification

The 3 months correlation between Small and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Small Capitalization i.e., Small Capitalization and Vanguard Small go up and down completely randomly.

Pair Corralation between Small Capitalization and Vanguard Small

Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 1.02 times more return on investment than Vanguard Small. However, Small Capitalization is 1.02 times more volatile than Vanguard Small Cap Growth. It trades about 0.07 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.05 per unit of risk. If you would invest  512.00  in Small Capitalization Portfolio on January 26, 2024 and sell it today you would earn a total of  108.00  from holding Small Capitalization Portfolio or generate 21.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Small Capitalization Portfolio  vs.  Vanguard Small Cap Growth

Small Capitalization

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Capitalization Portfolio are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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 Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Capitalization and Vanguard Small

The main advantage of trading using opposite Small Capitalization and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Capitalization position performs unexpectedly, Vanguard Small 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 will offset losses from the drop in Vanguard Small's long position.

The idea behind Small Capitalization Portfolio and Vanguard Small Cap Growth 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.