Correlation Between Vanguard Small and Vanguard International

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard International 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 Vanguard International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Growth and Vanguard International Growth, you can compare the effects of market volatilities on Vanguard Small and Vanguard International 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 Vanguard International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard International.

Diversification Opportunities for Vanguard Small and Vanguard International

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Vanguard and Vanguard is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Vanguard International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International 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 Growth are associated (or correlated) with Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of Vanguard Small i.e., Vanguard Small and Vanguard International go up and down completely randomly.

Pair Corralation between Vanguard Small and Vanguard International

Assuming the 90 days horizon Vanguard Small Cap Growth is expected to generate 1.71 times more return on investment than Vanguard International. However, Vanguard Small is 1.71 times more volatile than Vanguard International Growth. It trades about 0.4 of its potential returns per unit of risk. Vanguard International Growth is currently generating about -0.02 per unit of risk. If you would invest  9,628  in Vanguard Small Cap Growth on September 6, 2024 and sell it today you would earn a total of  1,062  from holding Vanguard Small Cap Growth or generate 11.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Vanguard Small Cap Growth  vs.  Vanguard International Growth

 Performance 
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

26 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small showed solid returns over the last few months and may actually be approaching a breakup point.
Vanguard International 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard International Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Small and Vanguard International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Small and Vanguard International

The main advantage of trading using opposite Vanguard Small and Vanguard International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, Vanguard International 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 Vanguard International will offset losses from the drop in Vanguard International's long position.
The idea behind Vanguard Small Cap Growth and Vanguard International Growth 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.
Check out your portfolio center.
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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