Correlation Between Vanguard Small and PowerShares Global

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

Diversification Opportunities for Vanguard Small and PowerShares Global

0.57

Correlation Coefficient

Vanguard Small  PowerShares Global

Very weak diversification

The 3 months correlation between Vanguard and PowerShares is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and PowerShares Global Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PowerShares Global Funds 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 PowerShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PowerShares Global Funds has no effect on the direction of Vanguard Small i.e., Vanguard Small and PowerShares Global go up and down completely randomly.

Pair Corralation between Vanguard Small and PowerShares Global

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 2.61 times less return on investment than PowerShares Global. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.14 times less risky than PowerShares Global. It trades about 0.05 of its potential returns per unit of risk. PowerShares Global Funds is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19,400  in PowerShares Global Funds on October 3, 2024 and sell it today you would earn a total of  16,597  from holding PowerShares Global Funds or generate 85.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.54%
Values	Daily Returns

Vanguard Small Cap Index  vs.  PowerShares Global Funds

Vanguard Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

PowerShares Global Funds

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PowerShares Global Funds are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PowerShares Global may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Small and PowerShares Global

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

The idea behind Vanguard Small Cap Index and PowerShares Global Funds 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.