Correlation Between Vanguard Small and Ultrasmall Cap

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

Diversification Opportunities for Vanguard Small and Ultrasmall Cap

0.76

Correlation Coefficient

Vanguard Small  Ultrasmall Cap

Poor diversification

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

Pair Corralation between Vanguard Small and Ultrasmall Cap

Assuming the 90 days horizon Vanguard Small is expected to generate 2.65 times less return on investment than Ultrasmall Cap. But when comparing it to its historical volatility, Vanguard Small Cap Value is 2.15 times less risky than Ultrasmall Cap. It trades about 0.11 of its potential returns per unit of risk. Ultrasmall Cap Profund Ultrasmall Cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,071  in Ultrasmall Cap Profund Ultrasmall Cap on May 5, 2025 and sell it today you would earn a total of  785.00  from holding Ultrasmall Cap Profund Ultrasmall Cap or generate 19.28% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Ultrasmall Cap Profund Ultrasm

Vanguard Small Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Ultrasmall Cap Profund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrasmall Cap Profund Ultrasmall Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrasmall Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Small and Ultrasmall Cap

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

The idea behind Vanguard Small Cap Value and Ultrasmall Cap Profund Ultrasmall 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.