Correlation Between Vanguard Small and Acuitas Microcap

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

Diversification Opportunities for Vanguard Small and Acuitas Microcap

0.89

Correlation Coefficient

Vanguard Small  Acuitas Microcap

Very poor diversification

The 3 months correlation between Vanguard and Acuitas is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Acuitas Microcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acuitas Microcap 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 Acuitas Microcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acuitas Microcap has no effect on the direction of Vanguard Small i.e., Vanguard Small and Acuitas Microcap go up and down completely randomly.

Pair Corralation between Vanguard Small and Acuitas Microcap

Assuming the 90 days horizon Vanguard Small is expected to generate 1.37 times less return on investment than Acuitas Microcap. But when comparing it to its historical volatility, Vanguard Small Cap Index is 1.49 times less risky than Acuitas Microcap. It trades about 0.27 of its potential returns per unit of risk. Acuitas Microcap Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,409  in Acuitas Microcap Fund on August 14, 2024 and sell it today you would earn a total of  133.00  from holding Acuitas Microcap Fund or generate 9.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Vanguard Small Cap Index  vs.  Acuitas Microcap Fund

Vanguard Small Cap

Risk-Adjusted Performance

18 of 100

Solid

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

Acuitas Microcap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Acuitas Microcap Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Acuitas Microcap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Small and Acuitas Microcap

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

The idea behind Vanguard Small Cap Index and Acuitas Microcap 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 Transaction History module to view history of all your transactions and understand their impact on performance.