Correlation Between Vanguard Small-cap and Simt Small

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

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

Diversification Opportunities for Vanguard Small-cap and Simt Small

0.72

Correlation Coefficient

Vanguard Small-cap  Simt Small

Poor diversification

The 3 months correlation between Vanguard and Simt is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Simt Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Small Cap 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 Growth are associated (or correlated) with Simt Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Small Cap has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Simt Small go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Simt Small

Assuming the 90 days horizon Vanguard Small Cap Growth is expected to generate 0.6 times more return on investment than Simt Small. However, Vanguard Small Cap Growth is 1.65 times less risky than Simt Small. It trades about -0.14 of its potential returns per unit of risk. Simt Small Cap is currently generating about -0.26 per unit of risk. If you would invest  10,501  in Vanguard Small Cap Growth on October 9, 2024 and sell it today you would lose (400.00) from holding Vanguard Small Cap Growth or give up 3.81% of portfolio value over 90 days.

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

Vanguard Small Cap Growth  vs.  Simt Small Cap

Vanguard Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small-cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Simt Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simt Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Simt Small 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 Simt Small

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

The idea behind Vanguard Small Cap Growth and Simt Small Cap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.