Correlation Between Vanguard Explorer and Kinetics Small

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

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

Diversification Opportunities for Vanguard Explorer and Kinetics Small

0.78

Correlation Coefficient

Vanguard Explorer  Kinetics Small

Poor diversification

The 3 months correlation between Vanguard and Kinetics is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Explorer Fund and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap and Vanguard Explorer 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 Explorer Fund are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Vanguard Explorer i.e., Vanguard Explorer and Kinetics Small go up and down completely randomly.

Pair Corralation between Vanguard Explorer and Kinetics Small

Assuming the 90 days horizon Vanguard Explorer Fund is expected to under-perform the Kinetics Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Explorer Fund is 1.84 times less risky than Kinetics Small. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Kinetics Small Cap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  16,591  in Kinetics Small Cap on October 9, 2024 and sell it today you would earn a total of  1,855  from holding Kinetics Small Cap or generate 11.18% return on investment over 90 days.

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

Vanguard Explorer Fund  vs.  Kinetics Small Cap

Vanguard Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Explorer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kinetics Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Explorer and Kinetics Small

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

The idea behind Vanguard Explorer Fund and Kinetics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.