Correlation Between Vanguard Mid and IMGP DBi

Can any of the company-specific risk be diversified away by investing in both Vanguard Mid and IMGP DBi 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 IMGP DBi 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 iMGP DBi Managed, you can compare the effects of market volatilities on Vanguard Mid and IMGP DBi 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 IMGP DBi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and IMGP DBi.

Diversification Opportunities for Vanguard Mid and IMGP DBi

0.79

Correlation Coefficient

Vanguard Mid  IMGP DBi

Poor diversification

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

Pair Corralation between Vanguard Mid and IMGP DBi

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 1.57 times more return on investment than IMGP DBi. However, Vanguard Mid is 1.57 times more volatile than iMGP DBi Managed. It trades about -0.02 of its potential returns per unit of risk. iMGP DBi Managed is currently generating about -0.06 per unit of risk. If you would invest  26,681  in Vanguard Mid Cap Index on December 27, 2024 and sell it today you would lose (346.00) from holding Vanguard Mid Cap Index or give up 1.3% 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.  iMGP DBi Managed

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 investors with long positions. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

iMGP DBi Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days iMGP DBi Managed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IMGP DBi is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Mid and IMGP DBi

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

The idea behind Vanguard Mid Cap Index and iMGP DBi Managed 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.