Correlation Between MicroSectors FANG and Vanguard Small

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

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

Diversification Opportunities for MicroSectors FANG and Vanguard Small

-0.66

Correlation Coefficient

MicroSectors FANG  Vanguard Small

Excellent diversification

The 3 months correlation between MicroSectors and Vanguard is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Vanguard Small go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Vanguard Small

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.98 times more return on investment than Vanguard Small. However, MicroSectors FANG is 1.98 times more volatile than Vanguard Small Cap Growth. It trades about 0.23 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.24 per unit of risk. If you would invest  39,696  in MicroSectors FANG Index on April 25, 2025 and sell it today you would earn a total of  3,694  from holding MicroSectors FANG Index or generate 9.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	31.15%
Values	Daily Returns

MicroSectors FANG Index  vs.  Vanguard Small Cap Growth

MicroSectors FANG Index

Risk-Adjusted Performance

Solid

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental drivers, Vanguard Small disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and Vanguard Small

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

The idea behind MicroSectors FANG Index and Vanguard Small Cap Growth 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.