Correlation Between Vanguard Mid-cap and The Texas

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

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

Diversification Opportunities for Vanguard Mid-cap and The Texas

0.79

Correlation Coefficient

Vanguard Mid-cap  The Texas

Poor diversification

The 3 months correlation between Vanguard and THE is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and The Texas Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Fund and Vanguard 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 Vanguard Mid Cap Index are associated (or correlated) with The Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Fund has no effect on the direction of Vanguard Mid-cap i.e., Vanguard Mid-cap and The Texas go up and down completely randomly.

Pair Corralation between Vanguard Mid-cap and The Texas

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to generate 0.72 times more return on investment than The Texas. However, Vanguard Mid Cap Index is 1.39 times less risky than The Texas. It trades about -0.04 of its potential returns per unit of risk. The Texas Fund is currently generating about -0.14 per unit of risk. If you would invest  33,055  in Vanguard Mid Cap Index on December 20, 2024 and sell it today you would lose (721.00) from holding Vanguard Mid Cap Index or give up 2.18% of portfolio value over 90 days.

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

Vanguard Mid Cap Index  vs.  The Texas Fund

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Mid-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Texas Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Texas Fund 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 Mid-cap and The Texas

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

The idea behind Vanguard Mid Cap Index and The Texas Fund 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.