Correlation Between Vanguard Small and Thornburg Limited

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

Diversification Opportunities for Vanguard Small and Thornburg Limited

-0.51

Correlation Coefficient

Vanguard Small  Thornburg Limited

Excellent diversification

The 3 months correlation between Vanguard and Thornburg is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Thornburg Limited Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Limited Term 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 Thornburg Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Limited Term has no effect on the direction of Vanguard Small i.e., Vanguard Small and Thornburg Limited go up and down completely randomly.

Pair Corralation between Vanguard Small and Thornburg Limited

Assuming the 90 days horizon Vanguard Small is expected to generate 3.28 times less return on investment than Thornburg Limited. In addition to that, Vanguard Small is 5.02 times more volatile than Thornburg Limited Term. It trades about 0.01 of its total potential returns per unit of risk. Thornburg Limited Term is currently generating about 0.21 per unit of volatility. If you would invest  1,293  in Thornburg Limited Term on September 13, 2024 and sell it today you would earn a total of  8.00  from holding Thornburg Limited Term or generate 0.62% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Thornburg Limited Term

Vanguard Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 11 (%) 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.

Thornburg Limited Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thornburg Limited Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Thornburg Limited 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 Thornburg Limited

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

The idea behind Vanguard Small Cap Value and Thornburg Limited Term 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .