Correlation Between Vanguard Small-cap and Grant Park

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

Diversification Opportunities for Vanguard Small-cap and Grant Park

0.07

Correlation Coefficient

Vanguard Small-cap  Grant Park

Significant diversification

The 3 months correlation between Vanguard and Grant is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Grant Park Multi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grant Park Multi 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 Grant Park. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grant Park Multi has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Grant Park go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Grant Park

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Grant Park. In addition to that, Vanguard Small-cap is 3.15 times more volatile than Grant Park Multi. It trades about -0.11 of its total potential returns per unit of risk. Grant Park Multi is currently generating about 0.09 per unit of volatility. If you would invest  1,038  in Grant Park Multi on December 21, 2024 and sell it today you would earn a total of  20.00  from holding Grant Park Multi or generate 1.93% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Grant Park Multi

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.

Grant Park Multi

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grant Park Multi are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Grant Park 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 Grant Park

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

The idea behind Vanguard Small Cap Index and Grant Park Multi 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.