Correlation Between Vanguard Small and Arrow DWA

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

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

Diversification Opportunities for Vanguard Small and Arrow DWA

-0.69

Correlation Coefficient

Vanguard Small  Arrow DWA

Excellent diversification

The 3 months correlation between Vanguard and Arrow is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Arrow DWA Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow DWA Tactical and Vanguard 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 Vanguard Small Cap Index are associated (or correlated) with Arrow DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow DWA Tactical has no effect on the direction of Vanguard Small i.e., Vanguard Small and Arrow DWA go up and down completely randomly.

Pair Corralation between Vanguard Small and Arrow DWA

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the Arrow DWA. In addition to that, Vanguard Small is 1.45 times more volatile than Arrow DWA Tactical. It trades about -0.18 of its total potential returns per unit of risk. Arrow DWA Tactical is currently generating about -0.09 per unit of volatility. If you would invest  2,838  in Arrow DWA Tactical on September 22, 2024 and sell it today you would lose (47.00) from holding Arrow DWA Tactical or give up 1.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Vanguard Small Cap Index  vs.  Arrow DWA Tactical

Vanguard Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Arrow DWA Tactical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow DWA Tactical has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Etf's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Vanguard Small and Arrow DWA

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

The idea behind Vanguard Small Cap Index and Arrow DWA Tactical 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 Global Correlations module to find global opportunities by holding instruments from different markets.