Correlation Between Vanguard Small and Davis Select

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

Diversification Opportunities for Vanguard Small and Davis Select

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between Vanguard and Davis is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Davis Select International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Interna and Vanguard Small 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 Small Cap Index are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Interna has no effect on the direction of Vanguard Small i.e., Vanguard Small and Davis Select go up and down completely randomly.

Pair Corralation between Vanguard Small and Davis Select

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.91 times more return on investment than Davis Select. However, Vanguard Small Cap Index is 1.09 times less risky than Davis Select. It trades about -0.17 of its potential returns per unit of risk. Davis Select International is currently generating about -0.31 per unit of risk. If you would invest  22,586  in Vanguard Small Cap Index on March 21, 2024 and sell it today you would lose (777.00) from holding Vanguard Small Cap Index or give up 3.44% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Vanguard Small Cap Index  vs.  Davis Select International

 Performance 
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Davis Select Interna 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Davis Select may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Vanguard Small and Davis Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Small and Davis Select

The main advantage of trading using opposite Vanguard Small and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Davis Select 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 Davis Select will offset losses from the drop in Davis Select's long position.
The idea behind Vanguard Small Cap Index and Davis Select International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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