Correlation Between Vanguard Financials and Nuveen Small

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

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

Diversification Opportunities for Vanguard Financials and Nuveen Small

0.96

Correlation Coefficient

Vanguard Financials  Nuveen Small

Almost no diversification

The 3 months correlation between VANGUARD and Nuveen is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Nuveen Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Small Cap and Vanguard Financials 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 Financials Index are associated (or correlated) with Nuveen Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Small Cap has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Nuveen Small go up and down completely randomly.

Pair Corralation between Vanguard Financials and Nuveen Small

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 0.95 times more return on investment than Nuveen Small. However, Vanguard Financials Index is 1.05 times less risky than Nuveen Small. It trades about 0.2 of its potential returns per unit of risk. Nuveen Small Cap is currently generating about 0.18 per unit of risk. If you would invest  5,473  in Vanguard Financials Index on August 31, 2024 and sell it today you would earn a total of  845.00  from holding Vanguard Financials Index or generate 15.44% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Nuveen Small Cap

Vanguard Financials Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Nuveen Small Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Small Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nuveen Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and Nuveen Small

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

The idea behind Vanguard Financials Index and Nuveen Small Cap 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.