Correlation Between Vanguard Small-cap and Mainstay Epoch

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

Diversification Opportunities for Vanguard Small-cap and Mainstay Epoch

0.94

Correlation Coefficient

Vanguard Small-cap  Mainstay Epoch

Almost no diversification

The 3 months correlation between Vanguard and Mainstay is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Mainstay Epoch Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mainstay Epoch Small 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 Mainstay Epoch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mainstay Epoch Small has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Mainstay Epoch go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Mainstay Epoch

Assuming the 90 days horizon Vanguard Small-cap is expected to generate 2.25 times less return on investment than Mainstay Epoch. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.25 times less risky than Mainstay Epoch. It trades about 0.05 of its potential returns per unit of risk. Mainstay Epoch Small is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,388  in Mainstay Epoch Small on October 5, 2024 and sell it today you would earn a total of  155.00  from holding Mainstay Epoch Small or generate 6.49% 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 Index  vs.  Mainstay Epoch Small

Vanguard Small Cap

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 3 (%) 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.

Mainstay Epoch Small

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mainstay Epoch Small are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mainstay Epoch may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard Small-cap and Mainstay Epoch

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

The idea behind Vanguard Small Cap Index and Mainstay Epoch Small 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.