Correlation Between Vanguard Small and American Sierra

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

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

Diversification Opportunities for Vanguard Small and American Sierra

-0.43

Correlation Coefficient

Vanguard Small  American Sierra

Very good diversification

The 3 months correlation between Vanguard and American is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and American Sierra Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Sierra Gold 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 Value are associated (or correlated) with American Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Sierra Gold has no effect on the direction of Vanguard Small i.e., Vanguard Small and American Sierra go up and down completely randomly.

Pair Corralation between Vanguard Small and American Sierra

Considering the 90-day investment horizon Vanguard Small Cap Value is expected to under-perform the American Sierra. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Value is 8.92 times less risky than American Sierra. The etf trades about -0.19 of its potential returns per unit of risk. The American Sierra Gold is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  0.40  in American Sierra Gold on September 21, 2024 and sell it today you would earn a total of  0.20  from holding American Sierra Gold or generate 50.0% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  American Sierra Gold

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

American Sierra Gold

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Sierra Gold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, American Sierra reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Small and American Sierra

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

The idea behind Vanguard Small Cap Value and American Sierra Gold 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .