Correlation Between Lgm Risk and Vanguard Small

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

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

Diversification Opportunities for Lgm Risk and Vanguard Small

0.96

Correlation Coefficient

Lgm Risk  Vanguard Small

Almost no diversification

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

Pair Corralation between Lgm Risk and Vanguard Small

Assuming the 90 days horizon Lgm Risk is expected to generate 3.06 times less return on investment than Vanguard Small. But when comparing it to its historical volatility, Lgm Risk Managed is 3.6 times less risky than Vanguard Small. It trades about 0.17 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  32,195  in Vanguard Small Cap Index on September 17, 2024 and sell it today you would earn a total of  2,825  from holding Vanguard Small Cap Index or generate 8.77% return on investment over 90 days.

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

Lgm Risk Managed  vs.  Vanguard Small Cap Index

Lgm Risk Managed

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lgm Risk Managed are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lgm Risk is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lgm Risk and Vanguard Small

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

The idea behind Lgm Risk Managed and Vanguard Small Cap Index 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.