Correlation Between Vanguard Small and Global Resources

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

By analyzing existing cross correlation between Vanguard Small Cap Index and Global Resources Fund, you can compare the effects of market volatilities on Vanguard Small and Global Resources 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 Global Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Global Resources.

Diversification Opportunities for Vanguard Small and Global Resources

-0.38

Correlation Coefficient

Vanguard Small  Global Resources

Very good diversification

The 3 months correlation between Vanguard and Global is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Global Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Resources 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 Index are associated (or correlated) with Global Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Resources has no effect on the direction of Vanguard Small i.e., Vanguard Small and Global Resources go up and down completely randomly.

Pair Corralation between Vanguard Small and Global Resources

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 1.03 times more return on investment than Global Resources. However, Vanguard Small is 1.03 times more volatile than Global Resources Fund. It trades about 0.12 of its potential returns per unit of risk. Global Resources Fund is currently generating about -0.08 per unit of risk. If you would invest  11,356  in Vanguard Small Cap Index on September 19, 2024 and sell it today you would earn a total of  815.00  from holding Vanguard Small Cap Index or generate 7.18% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  Global Resources Fund

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 Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Global Resources 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 Global Resources

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

The idea behind Vanguard Small Cap Index and Global Resources 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.