Correlation Between Vanguard Small-cap and Guidepath(r) Absolute

Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap and Guidepath(r) Absolute 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-cap and Guidepath(r) Absolute 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 Guidepath Absolute Return, you can compare the effects of market volatilities on Vanguard Small-cap and Guidepath(r) Absolute 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-cap with a short position of Guidepath(r) Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Guidepath(r) Absolute.

Diversification Opportunities for Vanguard Small-cap and Guidepath(r) Absolute

0.65

Correlation Coefficient

Vanguard Small-cap  Guidepath(r) Absolute

Poor diversification

The 3 months correlation between Vanguard and Guidepath(r) is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Guidepath Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidepath Absolute Return and Vanguard Small-cap 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 Guidepath(r) Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guidepath Absolute Return has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Guidepath(r) Absolute go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Guidepath(r) Absolute

Assuming the 90 days horizon Vanguard Small Cap Index is expected to generate 5.53 times more return on investment than Guidepath(r) Absolute. However, Vanguard Small-cap is 5.53 times more volatile than Guidepath Absolute Return. It trades about 0.26 of its potential returns per unit of risk. Guidepath Absolute Return is currently generating about 0.21 per unit of risk. If you would invest  9,916  in Vanguard Small Cap Index on April 22, 2025 and sell it today you would earn a total of  1,738  from holding Vanguard Small Cap Index or generate 17.53% 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 Index  vs.  Guidepath Absolute Return

Vanguard Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Guidepath Absolute Return

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guidepath Absolute Return are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Guidepath(r) Absolute is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small-cap and Guidepath(r) Absolute

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

The idea behind Vanguard Small Cap Index and Guidepath Absolute Return 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.