Correlation Between Vanguard Financials and Mid-cap Profund

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

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

Diversification Opportunities for Vanguard Financials and Mid-cap Profund

0.63

Correlation Coefficient

Vanguard Financials  Mid-cap Profund

Poor diversification

The 3 months correlation between Vanguard and MID-CAP is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Mid Cap Profund Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Profund and Vanguard Financials 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 Financials Index are associated (or correlated) with Mid-cap Profund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Profund has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Mid-cap Profund go up and down completely randomly.

Pair Corralation between Vanguard Financials and Mid-cap Profund

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 1.08 times more return on investment than Mid-cap Profund. However, Vanguard Financials is 1.08 times more volatile than Mid Cap Profund Mid Cap. It trades about 0.01 of its potential returns per unit of risk. Mid Cap Profund Mid Cap is currently generating about -0.09 per unit of risk. If you would invest  5,934  in Vanguard Financials Index on December 23, 2024 and sell it today you would earn a total of  33.00  from holding Vanguard Financials Index or generate 0.56% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Mid Cap Profund Mid Cap

Vanguard Financials Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Financials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Profund

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Vanguard Financials Index and Mid Cap Profund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.