Correlation Between Vanguard Small-cap and Aristotle Funds

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

By analyzing existing cross correlation between Vanguard Small Cap Index and Aristotle Funds Series, you can compare the effects of market volatilities on Vanguard Small-cap and Aristotle Funds 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-cap with a short position of Aristotle Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Aristotle Funds.

Diversification Opportunities for Vanguard Small-cap and Aristotle Funds

0.44

Correlation Coefficient

Vanguard Small-cap  Aristotle Funds

Very weak diversification

The 3 months correlation between Vanguard and Aristotle is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Aristotle Funds Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristotle Funds Series and Vanguard Small-cap 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 Index are associated (or correlated) with Aristotle Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristotle Funds Series has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Aristotle Funds go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Aristotle Funds

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Aristotle Funds. In addition to that, Vanguard Small-cap is 1.16 times more volatile than Aristotle Funds Series. It trades about -0.24 of its total potential returns per unit of risk. Aristotle Funds Series is currently generating about -0.22 per unit of volatility. If you would invest  638.00  in Aristotle Funds Series on October 7, 2024 and sell it today you would lose (28.00) from holding Aristotle Funds Series or give up 4.39% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Aristotle Funds Series

Vanguard Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aristotle Funds Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aristotle Funds Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Aristotle Funds 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-cap and Aristotle Funds

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

The idea behind Vanguard Small Cap Index and Aristotle Funds Series 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.