Correlation Between Vanguard Small and Kennedy Capital

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

Diversification Opportunities for Vanguard Small and Kennedy Capital

0.93

Correlation Coefficient

Vanguard Small  Kennedy Capital

Almost no diversification

The 3 months correlation between Vanguard and Kennedy is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Kennedy Capital Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kennedy Capital Small 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 Kennedy Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kennedy Capital Small has no effect on the direction of Vanguard Small i.e., Vanguard Small and Kennedy Capital go up and down completely randomly.

Pair Corralation between Vanguard Small and Kennedy Capital

Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 0.72 times more return on investment than Kennedy Capital. However, Vanguard Small Cap Value is 1.4 times less risky than Kennedy Capital. It trades about 0.0 of its potential returns per unit of risk. Kennedy Capital Small is currently generating about -0.03 per unit of risk. If you would invest  4,778  in Vanguard Small Cap Value on September 20, 2024 and sell it today you would lose (14.00) from holding Vanguard Small Cap Value or give up 0.29% of portfolio value over 90 days.

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

Vanguard Small Cap Value  vs.  Kennedy Capital Small

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kennedy Capital Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Vanguard Small Cap Value and Kennedy Capital Small 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.