Correlation Between Vulcan Value and Avantis Small

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

By analyzing existing cross correlation between Vulcan Value Partners and Avantis Small Cap, you can compare the effects of market volatilities on Vulcan Value and Avantis Small 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 Vulcan Value with a short position of Avantis Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Value and Avantis Small.

Diversification Opportunities for Vulcan Value and Avantis Small

0.74

Correlation Coefficient

Vulcan Value  Avantis Small

Poor diversification

The 3 months correlation between Vulcan and Avantis is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Value Partners and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Small Cap and Vulcan Value 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 Vulcan Value Partners are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of Vulcan Value i.e., Vulcan Value and Avantis Small go up and down completely randomly.

Pair Corralation between Vulcan Value and Avantis Small

Assuming the 90 days horizon Vulcan Value Partners is expected to generate 0.67 times more return on investment than Avantis Small. However, Vulcan Value Partners is 1.48 times less risky than Avantis Small. It trades about 0.06 of its potential returns per unit of risk. Avantis Small Cap is currently generating about 0.04 per unit of risk. If you would invest  2,560  in Vulcan Value Partners on September 24, 2024 and sell it today you would earn a total of  218.00  from holding Vulcan Value Partners or generate 8.52% return on investment over 90 days.

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

Vulcan Value Partners  vs.  Avantis Small Cap

Vulcan Value Partners

Risk-Adjusted Performance

0 of 100

Weak

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

Avantis Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Avantis Small is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vulcan Value and Avantis Small

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

The idea behind Vulcan Value Partners and Avantis Small 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.