Correlation Between Vanguard Small and Nova Fund

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

Diversification Opportunities for Vanguard Small and Nova Fund

0.9

Correlation Coefficient

Vanguard Small  Nova Fund

Almost no diversification

The 3 months correlation between Vanguard and Nova is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Nova Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Fund Class 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 Nova Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Fund Class has no effect on the direction of Vanguard Small i.e., Vanguard Small and Nova Fund go up and down completely randomly.

Pair Corralation between Vanguard Small and Nova Fund

Assuming the 90 days horizon Vanguard Small is expected to generate 1.02 times less return on investment than Nova Fund. But when comparing it to its historical volatility, Vanguard Small Cap Value is 1.17 times less risky than Nova Fund. It trades about 0.07 of its potential returns per unit of risk. Nova Fund Class is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12,021  in Nova Fund Class on September 23, 2024 and sell it today you would earn a total of  1,240  from holding Nova Fund Class or generate 10.32% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Nova Fund Class

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nova Fund Class

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Fund Class are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Nova Fund 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 Nova Fund

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

The idea behind Vanguard Small Cap Value and Nova Fund Class 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.