Correlation Between Vanguard Large-cap and Vanguard Mid-cap

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

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

Diversification Opportunities for Vanguard Large-cap and Vanguard Mid-cap

0.96

Correlation Coefficient

Vanguard Large-cap  Vanguard Mid-cap

Almost no diversification

The 3 months correlation between VANGUARD and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and Vanguard Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Large-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 Large Cap Index are associated (or correlated) with Vanguard 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 Vanguard Mid Cap has no effect on the direction of Vanguard Large-cap i.e., Vanguard Large-cap and Vanguard Mid-cap go up and down completely randomly.

Pair Corralation between Vanguard Large-cap and Vanguard Mid-cap

Assuming the 90 days horizon Vanguard Large Cap Index is expected to under-perform the Vanguard Mid-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Large Cap Index is 1.22 times less risky than Vanguard Mid-cap. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Vanguard Mid Cap Growth is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  10,978  in Vanguard Mid Cap Growth on December 30, 2024 and sell it today you would lose (472.00) from holding Vanguard Mid Cap Growth or give up 4.3% of portfolio value over 90 days.

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

Vanguard Large Cap Index  vs.  Vanguard Mid Cap Growth

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

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

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary 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.

Pair Trading with Vanguard Large-cap and Vanguard Mid-cap

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

The idea behind Vanguard Large Cap Index and Vanguard Mid Cap Growth 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.