Correlation Between Vanguard Mid and Vanguard Energy

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

By analyzing existing cross correlation between Vanguard Mid Cap Value and Vanguard Energy Fund, you can compare the effects of market volatilities on Vanguard Mid and Vanguard Energy 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 Vanguard Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and Vanguard Energy.

Diversification Opportunities for Vanguard Mid and Vanguard Energy

-0.05

Correlation Coefficient

Vanguard Mid  Vanguard Energy

Good diversification

The 3 months correlation between Vanguard and Vanguard is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Value and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy 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 Value are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Vanguard Energy go up and down completely randomly.

Pair Corralation between Vanguard Mid and Vanguard Energy

Assuming the 90 days horizon Vanguard Mid Cap Value is expected to under-perform the Vanguard Energy. In addition to that, Vanguard Mid is 1.02 times more volatile than Vanguard Energy Fund. It trades about -0.02 of its total potential returns per unit of risk. Vanguard Energy Fund is currently generating about 0.19 per unit of volatility. If you would invest  8,038  in Vanguard Energy Fund on December 30, 2024 and sell it today you would earn a total of  793.00  from holding Vanguard Energy Fund or generate 9.87% return on investment over 90 days.

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

Vanguard Mid Cap Value  vs.  Vanguard Energy Fund

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

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

Vanguard Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Vanguard Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard Mid and Vanguard Energy

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

The idea behind Vanguard Mid Cap Value and Vanguard Energy 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.