Correlation Between Vanguard Extended and Paradigm Select

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

By analyzing existing cross correlation between Vanguard Extended Market and Paradigm Select Fund, you can compare the effects of market volatilities on Vanguard Extended and Paradigm Select 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 Extended with a short position of Paradigm Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Paradigm Select.

Diversification Opportunities for Vanguard Extended and Paradigm Select

0.93

Correlation Coefficient

Vanguard Extended  Paradigm Select

Almost no diversification

The 3 months correlation between Vanguard and Paradigm is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Paradigm Select Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Select and Vanguard Extended 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 Extended Market are associated (or correlated) with Paradigm Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Select has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Paradigm Select go up and down completely randomly.

Pair Corralation between Vanguard Extended and Paradigm Select

Assuming the 90 days horizon Vanguard Extended Market is expected to generate 0.93 times more return on investment than Paradigm Select. However, Vanguard Extended Market is 1.08 times less risky than Paradigm Select. It trades about -0.11 of its potential returns per unit of risk. Paradigm Select Fund is currently generating about -0.15 per unit of risk. If you would invest  14,408  in Vanguard Extended Market on December 31, 2024 and sell it today you would lose (1,283) from holding Vanguard Extended Market or give up 8.9% of portfolio value over 90 days.

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

Vanguard Extended Market  vs.  Paradigm Select Fund

Vanguard Extended Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Extended Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Paradigm Select

Risk-Adjusted Performance

Very Weak

Over the last 90 days Paradigm Select Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Vanguard Extended and Paradigm Select

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

The idea behind Vanguard Extended Market and Paradigm Select Fund 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.