Correlation Between Vanguard Extended and VanEck ETF

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

Diversification Opportunities for Vanguard Extended and VanEck ETF

0.96

Correlation Coefficient

Vanguard Extended  VanEck ETF

Almost no diversification

The 3 months correlation between Vanguard and VanEck is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Extended Market and VanEck ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck ETF Trust 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 VanEck ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck ETF Trust has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and VanEck ETF go up and down completely randomly.

Pair Corralation between Vanguard Extended and VanEck ETF

Considering the 90-day investment horizon Vanguard Extended Market is expected to generate 1.3 times more return on investment than VanEck ETF. However, Vanguard Extended is 1.3 times more volatile than VanEck ETF Trust. It trades about 0.14 of its potential returns per unit of risk. VanEck ETF Trust is currently generating about 0.1 per unit of risk. If you would invest  17,925  in Vanguard Extended Market on August 23, 2024 and sell it today you would earn a total of  1,745  from holding Vanguard Extended Market or generate 9.74% 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.  VanEck ETF Trust

Vanguard Extended Market

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in December 2024.

VanEck ETF Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck ETF Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, VanEck ETF is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Extended and VanEck ETF

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

The idea behind Vanguard Extended Market and VanEck ETF Trust 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.