Correlation Between Vanguard Small and Steward Small-mid

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

Diversification Opportunities for Vanguard Small and Steward Small-mid

0.99

Correlation Coefficient

Vanguard Small  Steward Small-mid

No risk reduction

The 3 months correlation between Vanguard and Steward is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Steward Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Small Mid 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 Steward Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Small Mid has no effect on the direction of Vanguard Small i.e., Vanguard Small and Steward Small-mid go up and down completely randomly.

Pair Corralation between Vanguard Small and Steward Small-mid

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 0.9 times more return on investment than Steward Small-mid. However, Vanguard Small Cap Index is 1.11 times less risky than Steward Small-mid. It trades about 0.23 of its potential returns per unit of risk. Steward Small Mid Cap is currently generating about 0.17 per unit of risk. If you would invest  10,861  in Vanguard Small Cap Index on September 3, 2024 and sell it today you would earn a total of  1,613  from holding Vanguard Small Cap Index or generate 14.85% 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 Index  vs.  Steward Small Mid Cap

Vanguard Small Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.

Steward Small Mid

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steward Small Mid Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Steward Small-mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Small and Steward Small-mid

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

The idea behind Vanguard Small Cap Index and Steward Small Mid 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.