Correlation Between Vanguard Small and Miller Intermediate

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

Diversification Opportunities for Vanguard Small and Miller Intermediate

0.9

Correlation Coefficient

Vanguard Small  Miller Intermediate

Almost no diversification

The 3 months correlation between Vanguard and Miller is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Miller Intermediate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Miller Intermediate Bond 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 Miller Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Miller Intermediate Bond has no effect on the direction of Vanguard Small i.e., Vanguard Small and Miller Intermediate go up and down completely randomly.

Pair Corralation between Vanguard Small and Miller Intermediate

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Miller Intermediate. In addition to that, Vanguard Small is 4.21 times more volatile than Miller Intermediate Bond. It trades about -0.21 of its total potential returns per unit of risk. Miller Intermediate Bond is currently generating about -0.25 per unit of volatility. If you would invest  1,665  in Miller Intermediate Bond on October 9, 2024 and sell it today you would lose (23.00) from holding Miller Intermediate Bond or give up 1.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.0%
Values	Daily Returns

Vanguard Small Cap Index  vs.  Miller Intermediate Bond

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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.

Miller Intermediate Bond

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Miller Intermediate Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Miller Intermediate 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 and Miller Intermediate

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

The idea behind Vanguard Small Cap Index and Miller Intermediate Bond 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.