Correlation Between PBND and Vanguard Small

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

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

Diversification Opportunities for PBND and Vanguard Small

-0.49

Correlation Coefficient

PBND  Vanguard Small

Very good diversification

The 3 months correlation between PBND and Vanguard is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding PBND and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and PBND 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 PBND are associated (or correlated) with Vanguard Small. 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 PBND i.e., PBND and Vanguard Small go up and down completely randomly.

Pair Corralation between PBND and Vanguard Small

If you would invest  23,003  in Vanguard Small Cap Index on September 13, 2024 and sell it today you would earn a total of  2,631  from holding Vanguard Small Cap Index or generate 11.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

PBND  vs.  Vanguard Small Cap Index

PBND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PBND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PBND is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Small Cap

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PBND and Vanguard Small

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

The idea behind PBND and Vanguard Small Cap 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.