Correlation Between Vanguard Small and Principal Value

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

Diversification Opportunities for Vanguard Small and Principal Value

0.94

Correlation Coefficient

Vanguard Small  Principal Value

Almost no diversification

The 3 months correlation between Vanguard and Principal is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Principal Value ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Value ETF 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 Principal Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Value ETF has no effect on the direction of Vanguard Small i.e., Vanguard Small and Principal Value go up and down completely randomly.

Pair Corralation between Vanguard Small and Principal Value

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 1.03 times less return on investment than Principal Value. In addition to that, Vanguard Small is 1.43 times more volatile than Principal Value ETF. It trades about 0.05 of its total potential returns per unit of risk. Principal Value ETF is currently generating about 0.07 per unit of volatility. If you would invest  4,027  in Principal Value ETF on October 24, 2024 and sell it today you would earn a total of  1,089  from holding Principal Value ETF or generate 27.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard Small Cap Index  vs.  Principal Value ETF

Vanguard Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 8 (%) 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 February 2025.

Principal Value ETF

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Principal Value 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 Principal Value

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

The idea behind Vanguard Small Cap Index and Principal Value ETF 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 CEOs Directory module to screen CEOs from public companies around the world.