Correlation Between AMS Small and Vanguard USD

Can any of the company-specific risk be diversified away by investing in both AMS Small and Vanguard USD 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 AMS Small and Vanguard USD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AMS Small Cap and Vanguard USD Treasury, you can compare the effects of market volatilities on AMS Small and Vanguard USD 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 AMS Small with a short position of Vanguard USD. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Vanguard USD.

Diversification Opportunities for AMS Small and Vanguard USD

-0.11

Correlation Coefficient

AMS Small  Vanguard USD

Good diversification

The 3 months correlation between AMS and Vanguard is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Vanguard USD Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard USD Treasury and AMS 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 AMS Small Cap are associated (or correlated) with Vanguard USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard USD Treasury has no effect on the direction of AMS Small i.e., AMS Small and Vanguard USD go up and down completely randomly.

Pair Corralation between AMS Small and Vanguard USD

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 2.66 times more return on investment than Vanguard USD. However, AMS Small is 2.66 times more volatile than Vanguard USD Treasury. It trades about 0.18 of its potential returns per unit of risk. Vanguard USD Treasury is currently generating about 0.16 per unit of risk. If you would invest  118,807  in AMS Small Cap on September 19, 2024 and sell it today you would earn a total of  4,608  from holding AMS Small Cap or generate 3.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

AMS Small Cap  vs.  Vanguard USD Treasury

Pair Trading with AMS Small and Vanguard USD

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

The idea behind AMS Small Cap and Vanguard USD Treasury 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.