Correlation Between Vanguard Small-cap and Tekla Life

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

Diversification Opportunities for Vanguard Small-cap and Tekla Life

0.5

Correlation Coefficient

Vanguard Small-cap  Tekla Life

Very weak diversification

The 3 months correlation between Vanguard and Tekla is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences 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 Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Tekla Life go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Tekla Life

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Tekla Life. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Index is 1.2 times less risky than Tekla Life. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Tekla Life Sciences is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,506  in Tekla Life Sciences on December 20, 2024 and sell it today you would lose (66.00) from holding Tekla Life Sciences or give up 4.38% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Tekla Life Sciences

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.

Tekla Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tekla Life Sciences has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Tekla Life 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 Tekla Life

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

The idea behind Vanguard Small Cap Index and Tekla Life Sciences 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.