Correlation Between Small Cap and Vanguard Advice

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

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

Diversification Opportunities for Small Cap and Vanguard Advice

0.07

Correlation Coefficient

Small Cap  Vanguard Advice

Significant diversification

The 3 months correlation between Small and Vanguard is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Vanguard Advice Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Advice Select and 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 Small Cap Stock are associated (or correlated) with Vanguard Advice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Advice Select has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Advice go up and down completely randomly.

Pair Corralation between Small Cap and Vanguard Advice

Assuming the 90 days horizon Small Cap is expected to generate 2.44 times less return on investment than Vanguard Advice. But when comparing it to its historical volatility, Small Cap Stock is 1.1 times less risky than Vanguard Advice. It trades about 0.03 of its potential returns per unit of risk. Vanguard Advice Select is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,483  in Vanguard Advice Select on December 2, 2024 and sell it today you would earn a total of  660.00  from holding Vanguard Advice Select or generate 44.5% return on investment over 90 days.

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

Small Cap Stock  vs.  Vanguard Advice Select

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Vanguard Advice Select

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Advice Select are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Advice may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Small Cap and Vanguard Advice

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

The idea behind Small Cap Stock and Vanguard Advice Select 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.