Correlation Between Vanguard Small and AdvisorShares

Can any of the company-specific risk be diversified away by investing in both Vanguard Small and AdvisorShares 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 AdvisorShares 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 AdvisorShares, you can compare the effects of market volatilities on Vanguard Small and AdvisorShares 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 AdvisorShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and AdvisorShares.

Diversification Opportunities for Vanguard Small and AdvisorShares

0.78

Correlation Coefficient

Vanguard Small  AdvisorShares

Poor diversification

The 3 months correlation between Vanguard and AdvisorShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and AdvisorShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares 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 AdvisorShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares has no effect on the direction of Vanguard Small i.e., Vanguard Small and AdvisorShares go up and down completely randomly.

Pair Corralation between Vanguard Small and AdvisorShares

If you would invest  22,501  in Vanguard Small Cap Index on September 5, 2024 and sell it today you would earn a total of  3,433  from holding Vanguard Small Cap Index or generate 15.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

Vanguard Small Cap Index  vs.  AdvisorShares

Vanguard Small Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Vanguard Small sustained solid returns over the last few months and may actually be approaching a breakup point.

AdvisorShares

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard Small and AdvisorShares

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

The idea behind Vanguard Small Cap Index and AdvisorShares 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.