Correlation Between Vanguard Explorer and Small Capitalization

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

Diversification Opportunities for Vanguard Explorer and Small Capitalization

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Vanguard and Small is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD EXPLORER FUND and SMALL CAPITALIZATION PORTFOLIO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization and Vanguard Explorer 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 Explorer Fund are associated (or correlated) with Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Small Capitalization go up and down completely randomly.

Pair Corralation between Vanguard Explorer and Small Capitalization

Assuming the 90 days horizon Vanguard Explorer is expected to generate 1.21 times less return on investment than Small Capitalization. But when comparing it to its historical volatility, Vanguard Explorer Fund is 1.12 times less risky than Small Capitalization. It trades about 0.02 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  570.00  in Small Capitalization Portfolio on December 30, 2023 and sell it today you would earn a total of  90.00  from holding Small Capitalization Portfolio or generate 15.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

VANGUARD EXPLORER FUND  vs.  SMALL CAPITALIZATION PORTFOLIO

 Performance 
       Timeline  
Vanguard Explorer Fund 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Explorer Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Explorer may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Small Capitalization 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Small Capitalization Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Capitalization may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Vanguard Explorer and Small Capitalization Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Explorer and Small Capitalization

The main advantage of trading using opposite Vanguard Explorer and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Explorer position performs unexpectedly, Small Capitalization 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 Small Capitalization will offset losses from the drop in Small Capitalization's long position.
The idea behind Vanguard Explorer Fund and Small Capitalization Portfolio 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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