Correlation Between Vanguard Small-cap and Vanguard Explorer

Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Vanguard Explorer 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-cap and Vanguard Explorer 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 Vanguard Explorer Fund, you can compare the effects of market volatilities on Vanguard Small-cap and Vanguard Explorer 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-cap with a short position of Vanguard Explorer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard Explorer.

Diversification Opportunities for Vanguard Small-cap and Vanguard Explorer

0.98

Correlation Coefficient

Vanguard Small-cap  Vanguard Explorer

Almost no diversification

The 3 months correlation between VANGUARD and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer and Vanguard Small-cap 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 Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Vanguard Explorer

Assuming the 90 days horizon Vanguard Small Cap Growth is expected to generate 1.03 times more return on investment than Vanguard Explorer. However, Vanguard Small-cap is 1.03 times more volatile than Vanguard Explorer Fund. It trades about 0.45 of its potential returns per unit of risk. Vanguard Explorer Fund is currently generating about 0.33 per unit of risk. If you would invest  7,541  in Vanguard Small Cap Growth on September 2, 2024 and sell it today you would earn a total of  926.00  from holding Vanguard Small Cap Growth or generate 12.28% 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.  Vanguard Explorer Fund

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 funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Explorer

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Vanguard Small-cap and Vanguard Explorer

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

The idea behind Vanguard Small Cap Growth and Vanguard Explorer 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.