Correlation Between Vanguard Mid and Short Term

Can any of the company-specific risk be diversified away by investing in both Vanguard Mid and Short Term 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 and Short Term 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 Short Term Income Fund, you can compare the effects of market volatilities on Vanguard Mid and Short Term 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 with a short position of Short Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and Short Term.

Diversification Opportunities for Vanguard Mid and Short Term

0.73

Correlation Coefficient

Vanguard Mid  Short Term

Poor diversification

The 3 months correlation between Vanguard and Short is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Short Term Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Income and Vanguard Mid 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 Short Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Income has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Short Term go up and down completely randomly.

Pair Corralation between Vanguard Mid and Short Term

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to under-perform the Short Term. In addition to that, Vanguard Mid is 18.35 times more volatile than Short Term Income Fund. It trades about -0.26 of its total potential returns per unit of risk. Short Term Income Fund is currently generating about 0.37 per unit of volatility. If you would invest  1,013  in Short Term Income Fund on September 23, 2024 and sell it today you would earn a total of  4.00  from holding Short Term Income Fund or generate 0.39% return on investment over 90 days.

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

Vanguard Mid Cap Index  vs.  Short Term Income Fund

Vanguard Mid Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Term Income

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Income Fund are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short Term 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 Mid and Short Term

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

The idea behind Vanguard Mid Cap Index and Short Term Income 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.