Correlation Between Vanguard Small and SGI Dynamic

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

Diversification Opportunities for Vanguard Small and SGI Dynamic

0.73

Correlation Coefficient

Vanguard Small  SGI Dynamic

Poor diversification

The 3 months correlation between Vanguard and SGI is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and SGI Dynamic Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SGI Dynamic Tactical 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 SGI Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SGI Dynamic Tactical has no effect on the direction of Vanguard Small i.e., Vanguard Small and SGI Dynamic go up and down completely randomly.

Pair Corralation between Vanguard Small and SGI Dynamic

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the SGI Dynamic. In addition to that, Vanguard Small is 1.78 times more volatile than SGI Dynamic Tactical. It trades about -0.34 of its total potential returns per unit of risk. SGI Dynamic Tactical is currently generating about -0.05 per unit of volatility. If you would invest  2,857  in SGI Dynamic Tactical on December 4, 2024 and sell it today you would lose (19.00) from holding SGI Dynamic Tactical or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Vanguard Small Cap Index  vs.  SGI Dynamic Tactical

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.

SGI Dynamic Tactical

Risk-Adjusted Performance

Very Weak

Over the last 90 days SGI Dynamic Tactical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SGI Dynamic is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and SGI Dynamic

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

The idea behind Vanguard Small Cap Index and SGI Dynamic Tactical 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.