Correlation Between Vanguard Small and Utilities Fund

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

Diversification Opportunities for Vanguard Small and Utilities Fund

0.46

Correlation Coefficient

Vanguard Small  Utilities Fund

Very weak diversification

The 3 months correlation between Vanguard and Utilities is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Utilities Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Class 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Class has no effect on the direction of Vanguard Small i.e., Vanguard Small and Utilities Fund go up and down completely randomly.

Pair Corralation between Vanguard Small and Utilities Fund

Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 1.09 times more return on investment than Utilities Fund. However, Vanguard Small is 1.09 times more volatile than Utilities Fund Class. It trades about 0.06 of its potential returns per unit of risk. Utilities Fund Class is currently generating about 0.03 per unit of risk. If you would invest  3,689  in Vanguard Small Cap Value on September 14, 2024 and sell it today you would earn a total of  1,347  from holding Vanguard Small Cap Value or generate 36.51% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Utilities Fund Class

Vanguard Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Utilities Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Utilities Fund 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 Small and Utilities Fund

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

The idea behind Vanguard Small Cap Value and Utilities Fund Class 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.

Check out your portfolio center.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..