Correlation Between Vanguard Small and Massachusetts Investors

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

By analyzing existing cross correlation between Vanguard Small Cap Value and Massachusetts Investors Trust, you can compare the effects of market volatilities on Vanguard Small and Massachusetts Investors 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 Massachusetts Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Massachusetts Investors.

Diversification Opportunities for Vanguard Small and Massachusetts Investors

0.74

Correlation Coefficient

Vanguard Small  Massachusetts Investors

Poor diversification

The 3 months correlation between Vanguard and Massachusetts is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Massachusetts Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Massachusetts Investors 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 Value are associated (or correlated) with Massachusetts Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Massachusetts Investors has no effect on the direction of Vanguard Small i.e., Vanguard Small and Massachusetts Investors go up and down completely randomly.

Pair Corralation between Vanguard Small and Massachusetts Investors

Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 0.36 times more return on investment than Massachusetts Investors. However, Vanguard Small Cap Value is 2.76 times less risky than Massachusetts Investors. It trades about -0.33 of its potential returns per unit of risk. Massachusetts Investors Trust is currently generating about -0.23 per unit of risk. If you would invest  9,193  in Vanguard Small Cap Value on September 23, 2024 and sell it today you would lose (618.00) from holding Vanguard Small Cap Value or give up 6.72% 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 Value  vs.  Massachusetts Investors Trust

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Massachusetts Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Massachusetts Investors Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Vanguard Small and Massachusetts Investors

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

The idea behind Vanguard Small Cap Value and Massachusetts Investors Trust 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.