Correlation Between IShares SP and Vanguard Mid

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

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

Diversification Opportunities for IShares SP and Vanguard Mid

0.87

Correlation Coefficient

IShares SP  Vanguard Mid

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and Vanguard Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and IShares SP 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 iShares SP Mid Cap 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 IShares SP i.e., IShares SP and Vanguard Mid go up and down completely randomly.

Pair Corralation between IShares SP and Vanguard Mid

Considering the 90-day investment horizon iShares SP Mid Cap is expected to generate 1.44 times more return on investment than Vanguard Mid. However, IShares SP is 1.44 times more volatile than Vanguard Mid Cap Value. It trades about 0.08 of its potential returns per unit of risk. Vanguard Mid Cap Value is currently generating about 0.09 per unit of risk. If you would invest  11,153  in iShares SP Mid Cap on September 23, 2024 and sell it today you would earn a total of  1,254  from holding iShares SP Mid Cap or generate 11.24% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  Vanguard Mid Cap Value

iShares SP Mid

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Vanguard Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Mid Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares SP and Vanguard Mid

The main advantage of trading using opposite IShares SP and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 iShares SP Mid Cap and Vanguard Mid Cap Value 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.