Correlation Between Vanguard Small and Oil Equipment

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

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

Diversification Opportunities for Vanguard Small and Oil Equipment

0.39

Correlation Coefficient

Vanguard Small  Oil Equipment

Weak diversification

The 3 months correlation between Vanguard and Oil is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services and Vanguard Small 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 Small Cap Value are associated (or correlated) with Oil Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Vanguard Small i.e., Vanguard Small and Oil Equipment go up and down completely randomly.

Pair Corralation between Vanguard Small and Oil Equipment

Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 0.3 times more return on investment than Oil Equipment. However, Vanguard Small Cap Value is 3.31 times less risky than Oil Equipment. It trades about 0.11 of its potential returns per unit of risk. Oil Equipment Services is currently generating about 0.01 per unit of risk. If you would invest  4,704  in Vanguard Small Cap Value on September 16, 2024 and sell it today you would earn a total of  305.00  from holding Vanguard Small Cap Value or generate 6.48% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Oil Equipment Services

Vanguard Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Oil Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil Equipment Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Oil Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and Oil Equipment

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

The idea behind Vanguard Small Cap Value and Oil Equipment Services 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.