Correlation Between Vanguard Extended and Paradigm Select

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

By analyzing existing cross correlation between Vanguard Extended Market and Paradigm Select Fund, you can compare the effects of market volatilities on Vanguard Extended and Paradigm Select 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 Extended with a short position of Paradigm Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Paradigm Select.

Diversification Opportunities for Vanguard Extended and Paradigm Select

0.85

Correlation Coefficient

Vanguard Extended  Paradigm Select

Very poor diversification

The 3 months correlation between Vanguard and Paradigm is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Paradigm Select Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Select and Vanguard Extended 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 Extended Market are associated (or correlated) with Paradigm Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Select has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Paradigm Select go up and down completely randomly.

Pair Corralation between Vanguard Extended and Paradigm Select

Assuming the 90 days horizon Vanguard Extended is expected to generate 1.02 times less return on investment than Paradigm Select. But when comparing it to its historical volatility, Vanguard Extended Market is 1.07 times less risky than Paradigm Select. It trades about 0.09 of its potential returns per unit of risk. Paradigm Select Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,326  in Paradigm Select Fund on September 18, 2024 and sell it today you would earn a total of  3,147  from holding Paradigm Select Fund or generate 59.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Vanguard Extended Market  vs.  Paradigm Select Fund

Vanguard Extended Market

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Paradigm Select

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm Select Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Paradigm Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Extended and Paradigm Select

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

The idea behind Vanguard Extended Market and Paradigm Select Fund 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..