Correlation Between Vanguard Global and Vanguard Small

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

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

Diversification Opportunities for Vanguard Global and Vanguard Small

-0.3

Correlation Coefficient

Vanguard Global  Vanguard Small

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Global ex US and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Vanguard Global 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 Global ex US are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Vanguard Global i.e., Vanguard Global and Vanguard Small go up and down completely randomly.

Pair Corralation between Vanguard Global and Vanguard Small

Given the investment horizon of 90 days Vanguard Global ex US is expected to generate 0.71 times more return on investment than Vanguard Small. However, Vanguard Global ex US is 1.4 times less risky than Vanguard Small. It trades about 0.07 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about -0.09 per unit of risk. If you would invest  3,952  in Vanguard Global ex US on December 29, 2024 and sell it today you would earn a total of  113.00  from holding Vanguard Global ex US or generate 2.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard Global ex US  vs.  Vanguard Small Cap Value

Vanguard Global ex

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Global ex US are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Global is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard Global and Vanguard Small

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

The idea behind Vanguard Global ex US and Vanguard Small Cap Value 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.