Correlation Between Vanguard Small and The Texas

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

Diversification Opportunities for Vanguard Small and The Texas

0.94

Correlation Coefficient

Vanguard Small  The Texas

Almost no diversification

The 3 months correlation between Vanguard and THE is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and The Texas Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Fund 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 Index are associated (or correlated) with The Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Fund has no effect on the direction of Vanguard Small i.e., Vanguard Small and The Texas go up and down completely randomly.

Pair Corralation between Vanguard Small and The Texas

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.87 times more return on investment than The Texas. However, Vanguard Small Cap Index is 1.14 times less risky than The Texas. It trades about -0.09 of its potential returns per unit of risk. The Texas Fund is currently generating about -0.14 per unit of risk. If you would invest  11,586  in Vanguard Small Cap Index on December 20, 2024 and sell it today you would lose (722.00) from holding Vanguard Small Cap Index or give up 6.23% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  The Texas Fund

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.

Texas Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Texas Fund 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.

Pair Trading with Vanguard Small and The Texas

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

The idea behind Vanguard Small Cap Index and The Texas Fund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..