Correlation Between Vanguard Small and PBND

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

Diversification Opportunities for Vanguard Small and PBND

0.0

Correlation Coefficient

Vanguard Small  PBND

Pay attention - limited upside

The 3 months correlation between Vanguard and PBND is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and PBND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PBND 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 PBND. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PBND has no effect on the direction of Vanguard Small i.e., Vanguard Small and PBND go up and down completely randomly.

Pair Corralation between Vanguard Small and PBND

If you would invest (100.00) in PBND on December 27, 2024 and sell it today you would earn a total of  100.00  from holding PBND or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Vanguard Small Cap Index  vs.  PBND

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 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.

PBND

Risk-Adjusted Performance

Very Weak

Over the last 90 days PBND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PBND 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 PBND

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

The idea behind Vanguard Small Cap Index and PBND 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.