Correlation Between Gmo Small and Vanguard Explorer

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

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

Diversification Opportunities for Gmo Small and Vanguard Explorer

0.75

Correlation Coefficient

Gmo Small  Vanguard Explorer

Poor diversification

The 3 months correlation between Gmo and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Small Cap and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer and Gmo Small 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 Gmo Small Cap are associated (or correlated) with Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of Gmo Small i.e., Gmo Small and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Gmo Small and Vanguard Explorer

Assuming the 90 days horizon Gmo Small Cap is expected to under-perform the Vanguard Explorer. In addition to that, Gmo Small is 1.51 times more volatile than Vanguard Explorer Fund. It trades about -0.32 of its total potential returns per unit of risk. Vanguard Explorer Fund is currently generating about -0.26 per unit of volatility. If you would invest  12,151  in Vanguard Explorer Fund on September 23, 2024 and sell it today you would lose (672.00) from holding Vanguard Explorer Fund or give up 5.53% of portfolio value over 90 days.

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

Gmo Small Cap  vs.  Vanguard Explorer Fund

Gmo Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Small Cap 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 Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gmo Small and Vanguard Explorer

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

The idea behind Gmo Small Cap and Vanguard Explorer Fund 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.