Correlation Between Vanguard and ETF Series

Can any of the company-specific risk be diversified away by investing in both Vanguard and ETF Series 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 ETF Series 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 ETF Series Solutions, you can compare the effects of market volatilities on Vanguard and ETF Series 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 ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and ETF Series.

Diversification Opportunities for Vanguard and ETF Series

0.97

Correlation Coefficient

Vanguard  ETF Series

Almost no diversification

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

Pair Corralation between Vanguard and ETF Series

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the ETF Series. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP Small Cap is 1.0 times less risky than ETF Series. The etf trades about -0.14 of its potential returns per unit of risk. The ETF Series Solutions is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  3,469  in ETF Series Solutions on December 28, 2024 and sell it today you would lose (308.69) from holding ETF Series Solutions or give up 8.9% 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.  ETF Series Solutions

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 fragile performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

ETF Series Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with Vanguard and ETF Series

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

The idea behind Vanguard SP Small Cap and ETF Series Solutions 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.