Correlation Between Vanguard Mega and Vanguard Small

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

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

Diversification Opportunities for Vanguard Mega and Vanguard Small

0.94

Correlation Coefficient

Vanguard Mega  Vanguard Small

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mega Cap and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard Mega 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 Vanguard Mega Cap 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 Vanguard Mega i.e., Vanguard Mega and Vanguard Small go up and down completely randomly.

Pair Corralation between Vanguard Mega and Vanguard Small

Considering the 90-day investment horizon Vanguard Mega Cap is expected to generate 0.8 times more return on investment than Vanguard Small. However, Vanguard Mega Cap is 1.26 times less risky than Vanguard Small. It trades about -0.09 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about -0.12 per unit of risk. If you would invest  21,311  in Vanguard Mega Cap on December 30, 2024 and sell it today you would lose (1,281) from holding Vanguard Mega Cap or give up 6.01% of portfolio value over 90 days.

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

Vanguard Mega Cap  vs.  Vanguard Small Cap Growth

Vanguard Mega Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mega Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Vanguard Mega is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Growth has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with Vanguard Mega and Vanguard Small

The main advantage of trading using opposite Vanguard Mega and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mega 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 Vanguard Mega Cap and Vanguard Small Cap Growth 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.