Correlation Between Vanguard Small and VictoryShares Small

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

Diversification Opportunities for Vanguard Small and VictoryShares Small

0.88

Correlation Coefficient

Vanguard Small  VictoryShares Small

Very poor diversification

The 3 months correlation between Vanguard and VictoryShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and VictoryShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares Small Cap 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 VictoryShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares Small Cap has no effect on the direction of Vanguard Small i.e., Vanguard Small and VictoryShares Small go up and down completely randomly.

Pair Corralation between Vanguard Small and VictoryShares Small

Considering the 90-day investment horizon Vanguard Small Cap Value is expected to generate 0.94 times more return on investment than VictoryShares Small. However, Vanguard Small Cap Value is 1.06 times less risky than VictoryShares Small. It trades about 0.06 of its potential returns per unit of risk. VictoryShares Small Cap is currently generating about 0.05 per unit of risk. If you would invest  15,349  in Vanguard Small Cap Value on September 14, 2024 and sell it today you would earn a total of  5,537  from holding Vanguard Small Cap Value or generate 36.07% 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 Value  vs.  VictoryShares Small Cap

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 Value are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VictoryShares Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VictoryShares Small Cap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, VictoryShares Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Small and VictoryShares Small

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

The idea behind Vanguard Small Cap Value and VictoryShares Small Cap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.