Correlation Between Mid Cap and Vanguard Mega

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

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

Diversification Opportunities for Mid Cap and Vanguard Mega

0.73

Correlation Coefficient

Mid Cap  Vanguard Mega

Poor diversification

The 3 months correlation between Mid and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap and Mid 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 Mid Cap Growth are associated (or correlated) with Vanguard Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of Mid Cap i.e., Mid Cap and Vanguard Mega go up and down completely randomly.

Pair Corralation between Mid Cap and Vanguard Mega

Assuming the 90 days horizon Mid Cap is expected to generate 1.44 times less return on investment than Vanguard Mega. But when comparing it to its historical volatility, Mid Cap Growth is 1.03 times less risky than Vanguard Mega. It trades about 0.09 of its potential returns per unit of risk. Vanguard Mega Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  46,734  in Vanguard Mega Cap on October 5, 2024 and sell it today you would earn a total of  22,426  from holding Vanguard Mega Cap or generate 47.99% return on investment over 90 days.

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

Mid Cap Growth  vs.  Vanguard Mega Cap

Mid Cap Growth

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard Mega Cap

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mega Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Mega may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Mid Cap and Vanguard Mega

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

The idea behind Mid Cap Growth and Vanguard Mega 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.