Correlation Between Vanguard Small and FlexShares International

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

Diversification Opportunities for Vanguard Small and FlexShares International

-0.72

Correlation Coefficient

Vanguard Small  FlexShares International

Pay attention - limited upside

The 3 months correlation between Vanguard and FlexShares is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares International 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 FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of Vanguard Small i.e., Vanguard Small and FlexShares International go up and down completely randomly.

Pair Corralation between Vanguard Small and FlexShares International

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 1.25 times more return on investment than FlexShares International. However, Vanguard Small is 1.25 times more volatile than FlexShares International Quality. It trades about 0.15 of its potential returns per unit of risk. FlexShares International Quality is currently generating about -0.06 per unit of risk. If you would invest  23,159  in Vanguard Small Cap Index on September 16, 2024 and sell it today you would earn a total of  2,167  from holding Vanguard Small Cap Index or generate 9.36% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  FlexShares International Quali

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.

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Small and FlexShares International

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

The idea behind Vanguard Small Cap Index and FlexShares International Quality 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.