Correlation Between Vanguard Small-cap and Pear Tree

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

Diversification Opportunities for Vanguard Small-cap and Pear Tree

0.96

Correlation Coefficient

Vanguard Small-cap  Pear Tree

Almost no diversification

The 3 months correlation between Vanguard and Pear is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris 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 Value are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Pear Tree go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Pear Tree

Assuming the 90 days horizon Vanguard Small Cap Value is expected to under-perform the Pear Tree. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Value is 1.03 times less risky than Pear Tree. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Pear Tree Polaris is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,696  in Pear Tree Polaris on December 29, 2024 and sell it today you would lose (74.00) from holding Pear Tree Polaris or give up 2.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Vanguard Small Cap Value  vs.  Pear Tree Polaris

Vanguard Small Cap

Risk-Adjusted Performance

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 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.

Pear Tree Polaris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pear Tree Polaris has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pear Tree 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 Pear Tree

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

The idea behind Vanguard Small Cap Value and Pear Tree Polaris 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.