Correlation Between Vanguard Small and Avantis Real

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

Diversification Opportunities for Vanguard Small and Avantis Real

0.68

Correlation Coefficient

Vanguard Small  Avantis Real

Poor diversification

The 3 months correlation between Vanguard and Avantis is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Avantis Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Real Estate and Vanguard Small 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 Avantis Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Real Estate has no effect on the direction of Vanguard Small i.e., Vanguard Small and Avantis Real go up and down completely randomly.

Pair Corralation between Vanguard Small and Avantis Real

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 1.2 times more return on investment than Avantis Real. However, Vanguard Small is 1.2 times more volatile than Avantis Real Estate. It trades about 0.03 of its potential returns per unit of risk. Avantis Real Estate is currently generating about 0.04 per unit of risk. If you would invest  22,039  in Vanguard Small Cap Index on December 2, 2024 and sell it today you would earn a total of  1,720  from holding Vanguard Small Cap Index or generate 7.8% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Avantis Real Estate

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 investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Avantis Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Avantis Real is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Small and Avantis Real

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

The idea behind Vanguard Small Cap Index and Avantis Real Estate 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 Global Correlations module to find global opportunities by holding instruments from different markets.