Correlation Between Vanguard Small and Vanguard Russell

Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard Russell 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 Vanguard Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Small Cap Value and Vanguard Russell 2000, you can compare the effects of market volatilities on Vanguard Small and Vanguard Russell 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 Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard Russell.

Diversification Opportunities for Vanguard Small and Vanguard Russell

0.93

Correlation Coefficient

Vanguard Small  Vanguard Russell

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Value are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard Russell go up and down completely randomly.

Pair Corralation between Vanguard Small and Vanguard Russell

Considering the 90-day investment horizon Vanguard Small Cap Value is expected to generate 0.81 times more return on investment than Vanguard Russell. However, Vanguard Small Cap Value is 1.24 times less risky than Vanguard Russell. It trades about 0.05 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about 0.04 per unit of risk. If you would invest  18,282  in Vanguard Small Cap Value on March 5, 2024 and sell it today you would earn a total of  508.00  from holding Vanguard Small Cap Value or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Small Cap Value  vs.  Vanguard Russell 2000

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Russell 2000

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Russell is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Small and Vanguard Russell

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

The idea behind Vanguard Small Cap Value and Vanguard Russell 2000 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.