Correlation Between Kennedy Capital and Vanguard 500

Can any of the company-specific risk be diversified away by investing in both Kennedy Capital and Vanguard 500 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 Kennedy Capital and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kennedy Capital Small and Vanguard 500 Index, you can compare the effects of market volatilities on Kennedy Capital and Vanguard 500 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 Kennedy Capital with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kennedy Capital and Vanguard 500.

Diversification Opportunities for Kennedy Capital and Vanguard 500

0.81

Correlation Coefficient

Kennedy Capital  Vanguard 500

Very poor diversification

The 3 months correlation between Kennedy and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Kennedy Capital Small and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and Kennedy Capital 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 Kennedy Capital Small are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Kennedy Capital i.e., Kennedy Capital and Vanguard 500 go up and down completely randomly.

Pair Corralation between Kennedy Capital and Vanguard 500

Assuming the 90 days horizon Kennedy Capital Small is expected to under-perform the Vanguard 500. In addition to that, Kennedy Capital is 2.3 times more volatile than Vanguard 500 Index. It trades about -0.03 of its total potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.16 per unit of volatility. If you would invest  52,608  in Vanguard 500 Index on September 20, 2024 and sell it today you would earn a total of  3,382  from holding Vanguard 500 Index or generate 6.43% return on investment over 90 days.

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

Kennedy Capital Small  vs.  Vanguard 500 Index

Kennedy Capital Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kennedy Capital Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Kennedy Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard 500 Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kennedy Capital and Vanguard 500

The main advantage of trading using opposite Kennedy Capital and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kennedy Capital position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.

The idea behind Kennedy Capital Small and Vanguard 500 Index 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 Transaction History module to view history of all your transactions and understand their impact on performance.