Correlation Between Vanguard Extended and Paradigm Select

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

By analyzing existing cross correlation between Vanguard Extended Market and Paradigm Select Fund, you can compare the effects of market volatilities on Vanguard Extended and Paradigm Select 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 Extended with a short position of Paradigm Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Paradigm Select.

Diversification Opportunities for Vanguard Extended and Paradigm Select

0.95

Correlation Coefficient

Vanguard Extended  Paradigm Select

Almost no diversification

The 3 months correlation between Vanguard and Paradigm is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and Paradigm Select Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Select and Vanguard Extended 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 Extended Market are associated (or correlated) with Paradigm Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Select has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Paradigm Select go up and down completely randomly.

Pair Corralation between Vanguard Extended and Paradigm Select

Assuming the 90 days horizon Vanguard Extended Market is expected to generate 0.77 times more return on investment than Paradigm Select. However, Vanguard Extended Market is 1.3 times less risky than Paradigm Select. It trades about 0.24 of its potential returns per unit of risk. Paradigm Select Fund is currently generating about 0.16 per unit of risk. If you would invest  13,030  in Vanguard Extended Market on May 1, 2025 and sell it today you would earn a total of  2,087  from holding Vanguard Extended Market or generate 16.02% return on investment over 90 days.

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

Vanguard Extended Market  vs.  Paradigm Select Fund

Vanguard Extended Market

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Vanguard Extended showed solid returns over the last few months and may actually be approaching a breakup point.

Paradigm Select

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm Select Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Paradigm Select showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Extended and Paradigm Select

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

The idea behind Vanguard Extended Market and Paradigm Select Fund 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.