Correlation Between MicroSectors FANG and Vanguard Mid

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Vanguard Mid 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 MicroSectors FANG and Vanguard Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG Index and Vanguard Mid Cap Index, you can compare the effects of market volatilities on MicroSectors FANG and Vanguard Mid 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 MicroSectors FANG with a short position of Vanguard Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Vanguard Mid.

Diversification Opportunities for MicroSectors FANG and Vanguard Mid

-0.66

Correlation Coefficient

MicroSectors FANG  Vanguard Mid

Excellent diversification

The 3 months correlation between MicroSectors and Vanguard is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Vanguard Mid go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Vanguard Mid

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Vanguard Mid. In addition to that, MicroSectors FANG is 4.73 times more volatile than Vanguard Mid Cap Index. It trades about -0.23 of its total potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.04 per unit of volatility. If you would invest  26,561  in Vanguard Mid Cap Index on September 26, 2024 and sell it today you would earn a total of  345.00  from holding Vanguard Mid Cap Index or generate 1.3% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  Vanguard Mid Cap Index

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Vanguard Mid Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and Vanguard Mid

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

The idea behind MicroSectors FANG Index and Vanguard Mid Cap Index 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.