Correlation Between Vanguard Small and ALPS International

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

Diversification Opportunities for Vanguard Small and ALPS International

-0.84

Correlation Coefficient

Vanguard Small  ALPS International

Pay attention - limited upside

The 3 months correlation between Vanguard and ALPS is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and ALPS International Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS International Sector 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 ALPS International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS International Sector has no effect on the direction of Vanguard Small i.e., Vanguard Small and ALPS International go up and down completely randomly.

Pair Corralation between Vanguard Small and ALPS International

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 1.17 times more return on investment than ALPS International. However, Vanguard Small is 1.17 times more volatile than ALPS International Sector. It trades about 0.18 of its potential returns per unit of risk. ALPS International Sector is currently generating about -0.02 per unit of risk. If you would invest  24,733  in Vanguard Small Cap Index on September 18, 2024 and sell it today you would earn a total of  677.00  from holding Vanguard Small Cap Index or generate 2.74% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  ALPS International Sector

Vanguard Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ALPS International Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS International Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALPS International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and ALPS International

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

The idea behind Vanguard Small Cap Index and ALPS International Sector 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.