Correlation Between Palm Valley and Vanguard Small-cap

Can any of the company-specific risk be diversified away by investing in both Palm Valley 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 Palm Valley 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 Palm Valley Capital and Vanguard Small Cap Growth, you can compare the effects of market volatilities on Palm Valley 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 Palm Valley with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palm Valley and Vanguard Small-cap.

Diversification Opportunities for Palm Valley and Vanguard Small-cap

0.6

Correlation Coefficient

Palm Valley  Vanguard Small-cap

Poor diversification

The 3 months correlation between Palm and Vanguard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Palm Valley Capital 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 Palm Valley 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 Palm Valley Capital 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 Palm Valley i.e., Palm Valley and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Palm Valley and Vanguard Small-cap

Assuming the 90 days horizon Palm Valley is expected to generate 14.19 times less return on investment than Vanguard Small-cap. But when comparing it to its historical volatility, Palm Valley Capital is 6.84 times less risky than Vanguard Small-cap. It trades about 0.1 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7,351  in Vanguard Small Cap Growth on August 30, 2024 and sell it today you would earn a total of  1,094  from holding Vanguard Small Cap Growth or generate 14.88% return on investment over 90 days.

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

Palm Valley Capital  vs.  Vanguard Small Cap Growth

Palm Valley Capital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palm Valley Capital are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Palm Valley is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Small Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palm Valley and Vanguard Small-cap

The main advantage of trading using opposite Palm Valley and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palm Valley 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 Palm Valley Capital 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.