Correlation Between Vanguard Small and Invesco Small

Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Invesco 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 Small and Invesco Small 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 Invesco Small Cap, you can compare the effects of market volatilities on Vanguard Small and Invesco 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 Small with a short position of Invesco Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Invesco Small.

Diversification Opportunities for Vanguard Small and Invesco Small

0.99

Correlation Coefficient

Vanguard Small  Invesco Small

No risk reduction

The 3 months correlation between Vanguard and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Invesco Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Small Cap 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 Invesco Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Small Cap has no effect on the direction of Vanguard Small i.e., Vanguard Small and Invesco Small go up and down completely randomly.

Pair Corralation between Vanguard Small and Invesco Small

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Invesco Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Index is 1.21 times less risky than Invesco Small. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Invesco Small Cap is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,268  in Invesco Small Cap on December 30, 2024 and sell it today you would lose (90.00) from holding Invesco Small Cap or give up 7.1% 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.  Invesco Small Cap

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.

Invesco Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco 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.

Pair Trading with Vanguard Small and Invesco Small

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

The idea behind Vanguard Small Cap Index and Invesco Small Cap 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.