Correlation Between Vanguard Small-cap and Mid Cap

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

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

Diversification Opportunities for Vanguard Small-cap and Mid Cap

0.99

Correlation Coefficient

Vanguard Small-cap  Mid Cap

No risk reduction

The 3 months correlation between Vanguard and Mid is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Vanguard Small-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 Small Cap Value are associated (or correlated) with Mid Cap. 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 Value has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Mid Cap go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Mid Cap

Assuming the 90 days horizon Vanguard Small-cap is expected to generate 1.11 times less return on investment than Mid Cap. In addition to that, Vanguard Small-cap is 1.11 times more volatile than Mid Cap Value Profund. It trades about 0.26 of its total potential returns per unit of risk. Mid Cap Value Profund is currently generating about 0.32 per unit of volatility. If you would invest  8,765  in Mid Cap Value Profund on October 20, 2024 and sell it today you would earn a total of  402.00  from holding Mid Cap Value Profund or generate 4.59% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Mid Cap Value Profund

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Value

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value Profund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap 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-cap and Mid Cap

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

The idea behind Vanguard Small Cap Value and Mid Cap Value Profund 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.