Correlation Between Dreyfus Active and Vanguard Small-cap

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

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

Diversification Opportunities for Dreyfus Active and Vanguard Small-cap

0.99

Correlation Coefficient

Dreyfus Active  Vanguard Small-cap

No risk reduction

The 3 months correlation between Dreyfus and VANGUARD is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dreyfus Active Midcap and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Dreyfus Active 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 Dreyfus Active Midcap are associated (or correlated) with Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Dreyfus Active i.e., Dreyfus Active and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Dreyfus Active and Vanguard Small-cap

Assuming the 90 days horizon Dreyfus Active is expected to generate 1.36 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, Dreyfus Active Midcap is 1.3 times less risky than Vanguard Small-cap. It trades about 0.45 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest  7,501  in Vanguard Small Cap Growth on September 1, 2024 and sell it today you would earn a total of  966.00  from holding Vanguard Small Cap Growth or generate 12.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Dreyfus Active Midcap  vs.  Vanguard Small Cap Growth

Dreyfus Active Midcap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Active Midcap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Dreyfus Active may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Small Cap

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dreyfus Active and Vanguard Small-cap

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

The idea behind Dreyfus Active Midcap and Vanguard Small Cap Growth 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.