Correlation Between Vanguard FTSE and Vanguard Small

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

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

Diversification Opportunities for Vanguard FTSE and Vanguard Small

-0.61

Correlation Coefficient

Vanguard FTSE  Vanguard Small

Excellent diversification

The 3 months correlation between Vanguard and Vanguard is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Europe and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard FTSE 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 FTSE Europe are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Vanguard Small go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Vanguard Small

Considering the 90-day investment horizon Vanguard FTSE Europe is expected to generate 0.84 times more return on investment than Vanguard Small. However, Vanguard FTSE Europe is 1.19 times less risky than Vanguard Small. It trades about 0.2 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about -0.1 per unit of risk. If you would invest  6,320  in Vanguard FTSE Europe on December 29, 2024 and sell it today you would earn a total of  778.00  from holding Vanguard FTSE Europe or generate 12.31% return on investment over 90 days.

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

Vanguard FTSE Europe  vs.  Vanguard Small Cap Index

Vanguard FTSE Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Europe are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Vanguard FTSE and Vanguard Small

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

The idea behind Vanguard FTSE Europe and Vanguard Small Cap 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.