Correlation Between Small-cap Value and Vanguard Total

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

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

Diversification Opportunities for Small-cap Value and Vanguard Total

0.24

Correlation Coefficient

Small-cap Value  Vanguard Total

Modest diversification

The 3 months correlation between Small-cap and Vanguard is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Vanguard Total International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Inter and Small-cap Value 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 Fund are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Inter has no effect on the direction of Small-cap Value i.e., Small-cap Value and Vanguard Total go up and down completely randomly.

Pair Corralation between Small-cap Value and Vanguard Total

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 1.86 times more return on investment than Vanguard Total. However, Small-cap Value is 1.86 times more volatile than Vanguard Total International. It trades about 0.03 of its potential returns per unit of risk. Vanguard Total International is currently generating about 0.06 per unit of risk. If you would invest  3,326  in Small Cap Value Fund on October 5, 2024 and sell it today you would earn a total of  390.00  from holding Small Cap Value Fund or generate 11.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.68%
Values	Daily Returns

Small Cap Value Fund  vs.  Vanguard Total International

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Vanguard Total Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total International has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small-cap Value and Vanguard Total

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

The idea behind Small Cap Value Fund and Vanguard Total International 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.