Correlation Between Vanguard Small-cap and Advisory Research

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

Diversification Opportunities for Vanguard Small-cap and Advisory Research

0.66

Correlation Coefficient

Vanguard Small-cap  Advisory Research

Poor diversification

The 3 months correlation between Vanguard and Advisory is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Advisory Research All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advisory Research All 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 Advisory Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advisory Research All has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Advisory Research go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Advisory Research

Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.17 times less return on investment than Advisory Research. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.12 times less risky than Advisory Research. It trades about 0.06 of its potential returns per unit of risk. Advisory Research All is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  921.00  in Advisory Research All on December 2, 2024 and sell it today you would earn a total of  377.00  from holding Advisory Research All or generate 40.93% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Advisory Research All

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

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

Advisory Research All

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advisory Research All has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators 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-cap and Advisory Research

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

The idea behind Vanguard Small Cap Index and Advisory Research All 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.