Correlation Between Vanguard Small and Vulcan Value

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

Diversification Opportunities for Vanguard Small and Vulcan Value

0.82

Correlation Coefficient

Vanguard Small  Vulcan Value

Very poor diversification

The 3 months correlation between Vanguard and Vulcan is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vulcan Value Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Value Partners 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 Vulcan Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Value Partners has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vulcan Value go up and down completely randomly.

Pair Corralation between Vanguard Small and Vulcan Value

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 1.37 times less return on investment than Vulcan Value. In addition to that, Vanguard Small is 1.4 times more volatile than Vulcan Value Partners. It trades about 0.18 of its total potential returns per unit of risk. Vulcan Value Partners is currently generating about 0.34 per unit of volatility. If you would invest  2,765  in Vulcan Value Partners on September 16, 2024 and sell it today you would earn a total of  109.00  from holding Vulcan Value Partners or generate 3.94% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Vulcan Value Partners

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.

Vulcan Value Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Value Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Vulcan Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and Vulcan Value

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

The idea behind Vanguard Small Cap Index and Vulcan Value Partners 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.