Correlation Between Vanguard Small and THCX

Can any of the company-specific risk be diversified away by investing in both Vanguard Small and THCX 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 THCX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Small Cap Growth and THCX, you can compare the effects of market volatilities on Vanguard Small and THCX 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 THCX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and THCX.

Diversification Opportunities for Vanguard Small and THCX

-0.57

Correlation Coefficient

Vanguard Small  THCX

Excellent diversification

The 3 months correlation between Vanguard and THCX is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and THCX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THCX 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 Growth are associated (or correlated) with THCX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THCX has no effect on the direction of Vanguard Small i.e., Vanguard Small and THCX go up and down completely randomly.

Pair Corralation between Vanguard Small and THCX

Considering the 90-day investment horizon Vanguard Small Cap Growth is expected to generate 0.54 times more return on investment than THCX. However, Vanguard Small Cap Growth is 1.84 times less risky than THCX. It trades about 0.08 of its potential returns per unit of risk. THCX is currently generating about -0.09 per unit of risk. If you would invest  19,582  in Vanguard Small Cap Growth on September 16, 2024 and sell it today you would earn a total of  9,920  from holding Vanguard Small Cap Growth or generate 50.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	29.03%
Values	Daily Returns

Vanguard Small Cap Growth  vs.  THCX

Vanguard Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

THCX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days THCX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, THCX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and THCX

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

The idea behind Vanguard Small Cap Growth and THCX 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.