Correlation Between Vanguard 500 and Japan Smaller

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 and Japan Smaller 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 500 and Japan Smaller into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard 500 Index and Japan Smaller Capitalization, you can compare the effects of market volatilities on Vanguard 500 and Japan Smaller 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 500 with a short position of Japan Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Japan Smaller.

Diversification Opportunities for Vanguard 500 and Japan Smaller

-0.53

Correlation Coefficient

Vanguard 500  Japan Smaller

Excellent diversification

The 3 months correlation between Vanguard and Japan is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Japan Smaller Capitalization in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Smaller Capita and Vanguard 500 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 500 Index are associated (or correlated) with Japan Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Smaller Capita has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Japan Smaller go up and down completely randomly.

Pair Corralation between Vanguard 500 and Japan Smaller

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 0.76 times more return on investment than Japan Smaller. However, Vanguard 500 Index is 1.31 times less risky than Japan Smaller. It trades about 0.2 of its potential returns per unit of risk. Japan Smaller Capitalization is currently generating about -0.02 per unit of risk. If you would invest  50,965  in Vanguard 500 Index on September 2, 2024 and sell it today you would earn a total of  4,814  from holding Vanguard 500 Index or generate 9.45% return on investment over 90 days.

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

Vanguard 500 Index  vs.  Japan Smaller Capitalization

Vanguard 500 Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Japan Smaller Capita

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Smaller Capitalization has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable basic indicators, Japan Smaller is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard 500 and Japan Smaller

The main advantage of trading using opposite Vanguard 500 and Japan Smaller positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 position performs unexpectedly, Japan Smaller 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 Japan Smaller will offset losses from the drop in Japan Smaller's long position.

The idea behind Vanguard 500 Index and Japan Smaller Capitalization 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.