Correlation Between Vanguard and Principal Small

Can any of the company-specific risk be diversified away by investing in both Vanguard and Principal 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 and Principal Small 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 Principal Small Cap Multi Factor, you can compare the effects of market volatilities on Vanguard and Principal 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 with a short position of Principal Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Principal Small.

Diversification Opportunities for Vanguard and Principal Small

0.97

Correlation Coefficient

Vanguard  Principal Small

Almost no diversification

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

Pair Corralation between Vanguard and Principal Small

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the Principal Small. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP Small Cap is 1.06 times less risky than Principal Small. The etf trades about -0.13 of its potential returns per unit of risk. The Principal Small Cap Multi Factor is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,110  in Principal Small Cap Multi Factor on December 30, 2024 and sell it today you would lose (288.00) from holding Principal Small Cap Multi Factor or give up 5.64% 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 Small Cap  vs.  Principal Small Cap Multi Fact

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Principal Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Small Cap Multi Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Principal Small is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard and Principal Small

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

The idea behind Vanguard SP Small Cap and Principal Small Cap Multi Factor 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.