Correlation Between Vanguard Small and SP Funds

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

Diversification Opportunities for Vanguard Small and SP Funds

-0.76

Correlation Coefficient

Vanguard Small  SP Funds

Pay attention - limited upside

The 3 months correlation between Vanguard and SPSK is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow 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 SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of Vanguard Small i.e., Vanguard Small and SP Funds go up and down completely randomly.

Pair Corralation between Vanguard Small and SP Funds

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the SP Funds. In addition to that, Vanguard Small is 7.58 times more volatile than SP Funds Dow. It trades about -0.11 of its total potential returns per unit of risk. SP Funds Dow is currently generating about 0.03 per unit of volatility. If you would invest  1,799  in SP Funds Dow on January 23, 2025 and sell it today you would earn a total of  5.00  from holding SP Funds Dow or generate 0.28% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  SP Funds Dow

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Etf's fundamental drivers remain somewhat strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

SP Funds Dow

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds Dow are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Vanguard Small and SP Funds

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

The idea behind Vanguard Small Cap Index and SP Funds Dow 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.