Correlation Between Vanguard Total and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Total 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 Total Stock and Small Capitalization Portfolio, you can compare the effects of market volatilities on Vanguard Total 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 Total with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and Small Capitalization.
Diversification Opportunities for Vanguard Total and Small Capitalization
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Small is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock 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 Total 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 Total Stock 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 Total i.e., Vanguard Total and Small Capitalization go up and down completely randomly.
Pair Corralation between Vanguard Total and Small Capitalization
Assuming the 90 days horizon Vanguard Total Stock is expected to generate 0.71 times more return on investment than Small Capitalization. However, Vanguard Total Stock is 1.41 times less risky than Small Capitalization. It trades about -0.31 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about -0.33 per unit of risk. If you would invest 23,655 in Vanguard Total Stock on January 20, 2024 and sell it today you would lose (1,087) from holding Vanguard Total Stock or give up 4.6% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard Total Stock vs. Small Capitalization Portfolio
Performance |
Timeline |
Vanguard Total Stock |
Small Capitalization |
Vanguard Total and Small Capitalization Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard Total and Small Capitalization
The main advantage of trading using opposite Vanguard Total and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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.Vanguard Total vs. Vanguard Materials Index | Vanguard Total vs. Vanguard Limited Term Tax Exempt | Vanguard Total vs. Vanguard Limited Term Tax Exempt | Vanguard Total vs. Vanguard Global Minimum |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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