Correlation Between Vanguard Small and Dreyfus Smallcap

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

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

Diversification Opportunities for Vanguard Small and Dreyfus Smallcap

0.91

Correlation Coefficient

Vanguard Small  Dreyfus Smallcap

Almost no diversification

The 3 months correlation between Vanguard and Dreyfus is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Dreyfus Smallcap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Smallcap Stock and Vanguard 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 Vanguard Small Cap Index are associated (or correlated) with Dreyfus Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Smallcap Stock has no effect on the direction of Vanguard Small i.e., Vanguard Small and Dreyfus Smallcap go up and down completely randomly.

Pair Corralation between Vanguard Small and Dreyfus Smallcap

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.99 times more return on investment than Dreyfus Smallcap. However, Vanguard Small Cap Index is 1.01 times less risky than Dreyfus Smallcap. It trades about -0.11 of its potential returns per unit of risk. Dreyfus Smallcap Stock is currently generating about -0.13 per unit of risk. If you would invest  11,502  in Vanguard Small Cap Index on December 30, 2024 and sell it today you would lose (879.00) from holding Vanguard Small Cap Index or give up 7.64% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Dreyfus Smallcap Stock

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index 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.

Dreyfus Smallcap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dreyfus Smallcap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Vanguard Small and Dreyfus Smallcap

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

The idea behind Vanguard Small Cap Index and Dreyfus Smallcap Stock 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 Commodity Directory module to find actively traded commodities issued by global exchanges.