Correlation Between IShares Core and Vanguard Mid

Can any of the company-specific risk be diversified away by investing in both IShares Core 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 Core 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 Core SP and Vanguard Mid Cap Index, you can compare the effects of market volatilities on IShares Core 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 Core with a short position of Vanguard Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Vanguard Mid.

Diversification Opportunities for IShares Core and Vanguard Mid

0.98

Correlation Coefficient

IShares Core  Vanguard Mid

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP 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 IShares Core 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 Core SP 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 Core i.e., IShares Core and Vanguard Mid go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Mid

Considering the 90-day investment horizon IShares Core is expected to generate 1.26 times less return on investment than Vanguard Mid. In addition to that, IShares Core is 1.03 times more volatile than Vanguard Mid Cap Index. It trades about 0.21 of its total potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.27 per unit of volatility. If you would invest  25,153  in Vanguard Mid Cap Index on September 4, 2024 and sell it today you would earn a total of  3,206  from holding Vanguard Mid Cap Index or generate 12.75% return on investment over 90 days.

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

iShares Core SP  vs.  Vanguard Mid Cap Index

iShares Core SP

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Mid Cap

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and Vanguard Mid

The main advantage of trading using opposite IShares Core and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.