Correlation Between Small Cap and Vanguard Reit

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

Diversification Opportunities for Small Cap and Vanguard Reit

0.34

Correlation Coefficient

Small Cap  Vanguard Reit

Weak diversification

The 3 months correlation between Small and Vanguard is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Vanguard Reit Ii in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Reit Ii 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 Reit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Reit Ii has no effect on the direction of Small Cap i.e., Small Cap and Vanguard Reit go up and down completely randomly.

Pair Corralation between Small Cap and Vanguard Reit

Assuming the 90 days horizon Small Cap is expected to generate 1.63 times less return on investment than Vanguard Reit. In addition to that, Small Cap is 1.11 times more volatile than Vanguard Reit Ii. It trades about 0.02 of its total potential returns per unit of risk. Vanguard Reit Ii is currently generating about 0.04 per unit of volatility. If you would invest  1,827  in Vanguard Reit Ii on December 4, 2024 and sell it today you would earn a total of  414.00  from holding Vanguard Reit Ii or generate 22.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Small Cap Stock  vs.  Vanguard Reit Ii

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 Reit Ii

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Reit Ii has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Reit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Vanguard Reit

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

The idea behind Small Cap Stock and Vanguard Reit Ii 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.