Correlation Between Vanguard Small and ETF Series

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

Diversification Opportunities for Vanguard Small and ETF Series

0.21

Correlation Coefficient

Vanguard Small  ETF Series

Modest diversification

The 3 months correlation between Vanguard and ETF is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Vanguard Small i.e., Vanguard Small and ETF Series go up and down completely randomly.

Pair Corralation between Vanguard Small and ETF Series

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the ETF Series. In addition to that, Vanguard Small is 8.29 times more volatile than ETF Series Solutions. It trades about -0.08 of its total potential returns per unit of risk. ETF Series Solutions is currently generating about 0.05 per unit of volatility. If you would invest  2,499  in ETF Series Solutions on December 26, 2024 and sell it today you would earn a total of  10.00  from holding ETF Series Solutions or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Vanguard Small Cap Index  vs.  ETF Series Solutions

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.

ETF Series Solutions

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, ETF Series 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 ETF Series

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

The idea behind Vanguard Small Cap Index and ETF Series Solutions 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.