Correlation Between Vanguard and Hamilton MidSmall

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

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

Diversification Opportunities for Vanguard and Hamilton MidSmall

0.9

Correlation Coefficient

Vanguard  Hamilton MidSmall

Almost no diversification

The 3 months correlation between Vanguard and Hamilton is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Hamilton MidSmall Cap Financia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton MidSmall Cap and Vanguard 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 SP 500 are associated (or correlated) with Hamilton MidSmall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton MidSmall Cap has no effect on the direction of Vanguard i.e., Vanguard and Hamilton MidSmall go up and down completely randomly.

Pair Corralation between Vanguard and Hamilton MidSmall

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the Hamilton MidSmall. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP 500 is 1.25 times less risky than Hamilton MidSmall. The etf trades about -0.07 of its potential returns per unit of risk. The Hamilton MidSmall Cap Financials is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,577  in Hamilton MidSmall Cap Financials on December 25, 2024 and sell it today you would lose (110.00) from holding Hamilton MidSmall Cap Financials or give up 3.08% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  Hamilton MidSmall Cap Financia

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Hamilton MidSmall Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hamilton MidSmall Cap Financials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Hamilton MidSmall is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard and Hamilton MidSmall

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

The idea behind Vanguard SP 500 and Hamilton MidSmall Cap Financials 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.