Correlation Between Vanguard Small and Fidelity Mid

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

Diversification Opportunities for Vanguard Small and Fidelity Mid

0.97

Correlation Coefficient

Vanguard Small  Fidelity Mid

Almost no diversification

The 3 months correlation between Vanguard and Fidelity is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Fidelity Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Mid Cap 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 Index are associated (or correlated) with Fidelity Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Mid Cap has no effect on the direction of Vanguard Small i.e., Vanguard Small and Fidelity Mid go up and down completely randomly.

Pair Corralation between Vanguard Small and Fidelity Mid

Assuming the 90 days horizon Vanguard Small Cap Index is expected to under-perform the Fidelity Mid. In addition to that, Vanguard Small is 1.13 times more volatile than Fidelity Mid Cap. It trades about -0.11 of its total potential returns per unit of risk. Fidelity Mid Cap is currently generating about -0.06 per unit of volatility. If you would invest  3,379  in Fidelity Mid Cap on December 30, 2024 and sell it today you would lose (133.00) from holding Fidelity Mid Cap or give up 3.94% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Fidelity Mid Cap

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Fidelity Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Mid 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 and Fidelity Mid

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

The idea behind Vanguard Small Cap Index and Fidelity Mid Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.