Correlation Between Vanguard Small and Vanguard Value

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

Diversification Opportunities for Vanguard Small and Vanguard Value

0.59

Correlation Coefficient

Vanguard Small  Vanguard Value

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard Value go up and down completely randomly.

Pair Corralation between Vanguard Small and Vanguard Value

Considering the 90-day investment horizon Vanguard Small Cap Value is expected to under-perform the Vanguard Value. In addition to that, Vanguard Small is 1.32 times more volatile than Vanguard Value Index. It trades about -0.09 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about 0.04 per unit of volatility. If you would invest  16,796  in Vanguard Value Index on December 29, 2024 and sell it today you would earn a total of  287.00  from holding Vanguard Value Index or generate 1.71% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Vanguard Value Index

Vanguard Small Cap

Risk-Adjusted Performance

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.

Vanguard Value Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Small and Vanguard Value

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

The idea behind Vanguard Small Cap Value and Vanguard Value Index 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.