Correlation Between Oracle and Vanguard Small

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

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

Diversification Opportunities for Oracle and Vanguard Small

0.7

Correlation Coefficient

Oracle  Vanguard Small

Poor diversification

The 3 months correlation between Oracle and Vanguard is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Oracle 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 Oracle 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 Oracle 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 Oracle i.e., Oracle and Vanguard Small go up and down completely randomly.

Pair Corralation between Oracle and Vanguard Small

Given the investment horizon of 90 days Oracle is expected to generate 1.4 times less return on investment than Vanguard Small. In addition to that, Oracle is 1.86 times more volatile than Vanguard Small Cap Growth. It trades about 0.1 of its total potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.25 per unit of volatility. If you would invest  7,177  in Vanguard Small Cap Growth on September 12, 2024 and sell it today you would earn a total of  1,224  from holding Vanguard Small Cap Growth or generate 17.05% return on investment over 90 days.

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

Oracle  vs.  Vanguard Small Cap Growth

Oracle

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal fundamental indicators, Oracle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Small Cap

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oracle and Vanguard Small

The main advantage of trading using opposite Oracle and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oracle 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 Oracle 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.