Correlation Between Vanguard Small and SPDR SP

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

By analyzing existing cross correlation between Vanguard Small Cap Value and SPDR SP 600, you can compare the effects of market volatilities on Vanguard Small and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and SPDR SP.

Diversification Opportunities for Vanguard Small and SPDR SP

0.97

Correlation Coefficient

Vanguard Small  SPDR SP

Almost no diversification

The 3 months correlation between Vanguard and SPDR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 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 Value are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 600 has no effect on the direction of Vanguard Small i.e., Vanguard Small and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard Small and SPDR SP

Considering the 90-day investment horizon Vanguard Small is expected to generate 9.83 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Vanguard Small Cap Value is 1.27 times less risky than SPDR SP. It trades about 0.0 of its potential returns per unit of risk. SPDR SP 600 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,636  in SPDR SP 600 on September 24, 2024 and sell it today you would earn a total of  171.00  from holding SPDR SP 600 or generate 1.98% 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 Value  vs.  SPDR SP 600

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

SPDR SP 600

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 600 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Small and SPDR SP

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

The idea behind Vanguard Small Cap Value and SPDR SP 600 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.