Correlation Between Vanguard and Opus Small

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

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

Diversification Opportunities for Vanguard and Opus Small

0.96

Correlation Coefficient

Vanguard  Opus Small

Almost no diversification

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

Pair Corralation between Vanguard and Opus Small

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to generate 1.26 times more return on investment than Opus Small. However, Vanguard is 1.26 times more volatile than Opus Small Cap. It trades about 0.06 of its potential returns per unit of risk. Opus Small Cap is currently generating about 0.07 per unit of risk. If you would invest  9,697  in Vanguard SP Small Cap on September 24, 2024 and sell it today you would earn a total of  921.00  from holding Vanguard SP Small Cap or generate 9.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.21%
Values	Daily Returns

Vanguard SP Small Cap  vs.  Opus Small Cap

Vanguard SP Small

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Opus Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Opus Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Opus Small is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and Opus Small

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

The idea behind Vanguard SP Small Cap and Opus 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.