Correlation Between Sp Smallcap and Vanguard Extended

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

By analyzing existing cross correlation between Sp Smallcap 600 and Vanguard Extended Market, you can compare the effects of market volatilities on Sp Smallcap and Vanguard Extended 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 Sp Smallcap with a short position of Vanguard Extended. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Smallcap and Vanguard Extended.

Diversification Opportunities for Sp Smallcap and Vanguard Extended

0.96

Correlation Coefficient

Sp Smallcap  Vanguard Extended

Almost no diversification

The 3 months correlation between RYSVX and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Sp Smallcap 600 and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market and Sp Smallcap 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 Sp Smallcap 600 are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of Sp Smallcap i.e., Sp Smallcap and Vanguard Extended go up and down completely randomly.

Pair Corralation between Sp Smallcap and Vanguard Extended

Assuming the 90 days horizon Sp Smallcap is expected to generate 2.77 times less return on investment than Vanguard Extended. In addition to that, Sp Smallcap is 1.28 times more volatile than Vanguard Extended Market. It trades about 0.02 of its total potential returns per unit of risk. Vanguard Extended Market is currently generating about 0.06 per unit of volatility. If you would invest  27,918  in Vanguard Extended Market on October 24, 2024 and sell it today you would earn a total of  9,673  from holding Vanguard Extended Market or generate 34.65% return on investment over 90 days.

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

Sp Smallcap 600  vs.  Vanguard Extended Market

Sp Smallcap 600

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard Extended Market

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sp Smallcap and Vanguard Extended

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

The idea behind Sp Smallcap 600 and Vanguard Extended Market 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.