Correlation Between Small Cap and Vanguard Capital

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

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

Diversification Opportunities for Small Cap and Vanguard Capital

0.65

Correlation Coefficient

Small Cap  Vanguard Capital

Poor diversification

The 3 months correlation between Small and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Vanguard Capital Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Capital Opp and 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 Small Cap Value are associated (or correlated) with Vanguard Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Capital Opp has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Capital go up and down completely randomly.

Pair Corralation between Small Cap and Vanguard Capital

Assuming the 90 days horizon Small Cap Value is expected to under-perform the Vanguard Capital. In addition to that, Small Cap is 1.03 times more volatile than Vanguard Capital Opportunity. It trades about -0.07 of its total potential returns per unit of risk. Vanguard Capital Opportunity is currently generating about -0.03 per unit of volatility. If you would invest  8,328  in Vanguard Capital Opportunity on December 21, 2024 and sell it today you would lose (162.00) from holding Vanguard Capital Opportunity or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Small Cap Value  vs.  Vanguard Capital Opportunity

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Capital Opp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Capital Opportunity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Vanguard Capital

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

The idea behind Small Cap Value and Vanguard Capital Opportunity 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.