Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Lord Abbett 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-cap and Lord Abbett into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Growth and Lord Abbett Alpha, you can compare the effects of market volatilities on Vanguard Small-cap and Lord Abbett 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-cap with a short position of Lord Abbett. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Lord Abbett.
Diversification Opportunities for Vanguard Small-cap and Lord Abbett
The 3 months correlation between Vanguard and Lord is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD SMALL-CAP GROWTH and LORD ABBETT ALPHA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lord Abbett Alpha and Vanguard Small-cap 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 Growth are associated (or correlated) with Lord Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lord Abbett Alpha has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Lord Abbett go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Lord Abbett
Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.05 times less return on investment than Lord Abbett. In addition to that, Vanguard Small-cap is 1.22 times more volatile than Lord Abbett Alpha. It trades about 0.06 of its total potential returns per unit of risk. Lord Abbett Alpha is currently generating about 0.07 per unit of volatility. If you would invest 1,969 in Lord Abbett Alpha on September 2, 2023 and sell it today you would earn a total of 67.00 from holding Lord Abbett Alpha or generate 3.4% return on investment over 90 days.
Over the last 90 days Vanguard Small Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Lord Abbett Alpha has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lord Abbett is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Small-cap and Lord Abbett Volatility Contrast
Predicted Return Density
Pair Trading with Vanguard Small-cap and Lord Abbett
The main advantage of trading using opposite Vanguard Small-cap and Lord Abbett positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap position performs unexpectedly, Lord Abbett 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 Lord Abbett will offset losses from the drop in Lord Abbett's long position.
The idea behind Vanguard Small Cap Growth and Lord Abbett Alpha 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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