Correlation Between Harbor Small and Vanguard Equity

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

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

Diversification Opportunities for Harbor Small and Vanguard Equity

0.96

Correlation Coefficient

Harbor Small  Vanguard Equity

Almost no diversification

The 3 months correlation between Harbor and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Harbor Small Cap and Vanguard Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Equity Income and Harbor 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 Harbor Small Cap are associated (or correlated) with Vanguard Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Equity Income has no effect on the direction of Harbor Small i.e., Harbor Small and Vanguard Equity go up and down completely randomly.

Pair Corralation between Harbor Small and Vanguard Equity

Assuming the 90 days horizon Harbor Small Cap is expected to generate 1.78 times more return on investment than Vanguard Equity. However, Harbor Small is 1.78 times more volatile than Vanguard Equity Income. It trades about 0.16 of its potential returns per unit of risk. Vanguard Equity Income is currently generating about 0.18 per unit of risk. If you would invest  1,405  in Harbor Small Cap on September 7, 2024 and sell it today you would earn a total of  161.00  from holding Harbor Small Cap or generate 11.46% return on investment over 90 days.

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

Harbor Small Cap  vs.  Vanguard Equity Income

Harbor Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Harbor Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Equity Income

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Equity Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Harbor Small and Vanguard Equity

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

The idea behind Harbor Small Cap and Vanguard Equity Income 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.