Correlation Between Vanguard Small-cap and Vanguard Intermediate-ter

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

Diversification Opportunities for Vanguard Small-cap and Vanguard Intermediate-ter

0.43

Correlation Coefficient

Vanguard Small-cap  Vanguard Intermediate-ter

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Intermediate Term Tre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate-ter and Vanguard Small-cap 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 Vanguard Intermediate-ter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate-ter has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Intermediate-ter go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Vanguard Intermediate-ter

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Vanguard Intermediate-ter. In addition to that, Vanguard Small-cap is 3.36 times more volatile than Vanguard Intermediate Term Treasury. It trades about -0.14 of its total potential returns per unit of risk. Vanguard Intermediate Term Treasury is currently generating about 0.04 per unit of volatility. If you would invest  982.00  in Vanguard Intermediate Term Treasury on November 29, 2024 and sell it today you would earn a total of  7.00  from holding Vanguard Intermediate Term Treasury or generate 0.71% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Vanguard Intermediate Term Tre

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.

Vanguard Intermediate-ter

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Intermediate Term Treasury are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Intermediate-ter is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small-cap and Vanguard Intermediate-ter

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

The idea behind Vanguard Small Cap Index and Vanguard Intermediate Term Treasury 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.