Correlation Between Vanguard and Vanguard Multifactor

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

By analyzing existing cross correlation between Vanguard SP Small Cap and Vanguard Multifactor, you can compare the effects of market volatilities on Vanguard and Vanguard Multifactor 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 Vanguard Multifactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Vanguard Multifactor.

Diversification Opportunities for Vanguard and Vanguard Multifactor

0.97

Correlation Coefficient

Vanguard  Vanguard Multifactor

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and Vanguard Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Multifactor 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 Small Cap are associated (or correlated) with Vanguard Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Multifactor has no effect on the direction of Vanguard i.e., Vanguard and Vanguard Multifactor go up and down completely randomly.

Pair Corralation between Vanguard and Vanguard Multifactor

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to generate 1.31 times more return on investment than Vanguard Multifactor. However, Vanguard is 1.31 times more volatile than Vanguard Multifactor. It trades about 0.14 of its potential returns per unit of risk. Vanguard Multifactor is currently generating about 0.17 per unit of risk. If you would invest  11,343  in Vanguard SP Small Cap on September 12, 2024 and sell it today you would earn a total of  1,271  from holding Vanguard SP Small Cap or generate 11.21% return on investment over 90 days.

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

Vanguard SP Small Cap  vs.  Vanguard Multifactor

Vanguard SP Small

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Multifactor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Vanguard Multifactor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and Vanguard Multifactor

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

The idea behind Vanguard SP Small Cap and Vanguard Multifactor 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.