Correlation Between Vanguard Small and Hood River

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

Diversification Opportunities for Vanguard Small and Hood River

0.98

Correlation Coefficient

Vanguard Small  Hood River

Almost no diversification

The 3 months correlation between Vanguard and Hood is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Hood River Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hood River Small 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 Growth are associated (or correlated) with Hood River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hood River Small has no effect on the direction of Vanguard Small i.e., Vanguard Small and Hood River go up and down completely randomly.

Pair Corralation between Vanguard Small and Hood River

Assuming the 90 days horizon Vanguard Small is expected to generate 1.03 times less return on investment than Hood River. But when comparing it to its historical volatility, Vanguard Small Cap Growth is 1.24 times less risky than Hood River. It trades about 0.23 of its potential returns per unit of risk. Hood River Small Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,223  in Hood River Small Cap on September 13, 2024 and sell it today you would earn a total of  1,109  from holding Hood River Small Cap or generate 15.35% 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 Growth  vs.  Hood River Small Cap

Vanguard Small Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Hood River Small

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hood River Small Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Hood River showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Small and Hood River

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

The idea behind Vanguard Small Cap Growth and Hood River 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.