Correlation Between Vanguard Diversified and Vanguard Mid

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

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

Diversification Opportunities for Vanguard Diversified and Vanguard Mid

0.5

Correlation Coefficient

Vanguard Diversified  Vanguard Mid

Very weak diversification

The 3 months correlation between Vanguard and Vanguard is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Diversified Equity and Vanguard Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Diversified 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 Diversified Equity 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 Vanguard Diversified i.e., Vanguard Diversified and Vanguard Mid go up and down completely randomly.

Pair Corralation between Vanguard Diversified and Vanguard Mid

Assuming the 90 days horizon Vanguard Diversified is expected to generate 1.0 times less return on investment than Vanguard Mid. But when comparing it to its historical volatility, Vanguard Diversified Equity is 1.18 times less risky than Vanguard Mid. It trades about 0.08 of its potential returns per unit of risk. Vanguard Mid Cap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,903  in Vanguard Mid Cap on December 2, 2024 and sell it today you would earn a total of  754.00  from holding Vanguard Mid Cap or generate 39.62% return on investment over 90 days.

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

Vanguard Diversified Equity  vs.  Vanguard Mid Cap

Vanguard Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Diversified Equity 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.

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap 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.

Pair Trading with Vanguard Diversified and Vanguard Mid

The main advantage of trading using opposite Vanguard Diversified and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Diversified 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 Vanguard Diversified Equity and Vanguard 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.