Correlation Between Vanguard Small and Inspire Faithward

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

By analyzing existing cross correlation between Vanguard Small Cap Growth and Inspire Faithward Mid, you can compare the effects of market volatilities on Vanguard Small and Inspire Faithward 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 Inspire Faithward. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Inspire Faithward.

Diversification Opportunities for Vanguard Small and Inspire Faithward

0.9

Correlation Coefficient

Vanguard Small  Inspire Faithward

Almost no diversification

The 3 months correlation between Vanguard and Inspire is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Inspire Faithward Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Faithward Mid 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 Growth are associated (or correlated) with Inspire Faithward. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Faithward Mid has no effect on the direction of Vanguard Small i.e., Vanguard Small and Inspire Faithward go up and down completely randomly.

Pair Corralation between Vanguard Small and Inspire Faithward

Considering the 90-day investment horizon Vanguard Small Cap Growth is expected to generate 1.06 times more return on investment than Inspire Faithward. However, Vanguard Small is 1.06 times more volatile than Inspire Faithward Mid. It trades about 0.28 of its potential returns per unit of risk. Inspire Faithward Mid is currently generating about 0.15 per unit of risk. If you would invest  25,319  in Vanguard Small Cap Growth on September 3, 2024 and sell it today you would earn a total of  4,848  from holding Vanguard Small Cap Growth or generate 19.15% return on investment over 90 days.

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

Vanguard Small Cap Growth  vs.  Inspire Faithward Mid

Vanguard Small Cap

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental drivers, Vanguard Small disclosed solid returns over the last few months and may actually be approaching a breakup point.

Inspire Faithward Mid

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Faithward Mid are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Inspire Faithward may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Small and Inspire Faithward

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

The idea behind Vanguard Small Cap Growth and Inspire Faithward Mid 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.