Correlation Between Vanguard Mid and Fidelity MSCI

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

Diversification Opportunities for Vanguard Mid and Fidelity MSCI

0.91

Correlation Coefficient

Vanguard Mid  Fidelity MSCI

Almost no diversification

The 3 months correlation between Vanguard and Fidelity is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Fidelity MSCI Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity MSCI Commun 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 Fidelity MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity MSCI Commun has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Fidelity MSCI go up and down completely randomly.

Pair Corralation between Vanguard Mid and Fidelity MSCI

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 0.78 times more return on investment than Fidelity MSCI. However, Vanguard Mid Cap Index is 1.29 times less risky than Fidelity MSCI. It trades about -0.03 of its potential returns per unit of risk. Fidelity MSCI Communication is currently generating about -0.06 per unit of risk. If you would invest  26,299  in Vanguard Mid Cap Index on December 29, 2024 and sell it today you would lose (587.00) from holding Vanguard Mid Cap Index or give up 2.23% of portfolio value over 90 days.

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

Vanguard Mid Cap Index  vs.  Fidelity MSCI Communication

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.

Fidelity MSCI Commun

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity MSCI Communication has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Fidelity MSCI is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Mid and Fidelity MSCI

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

The idea behind Vanguard Mid Cap Index and Fidelity MSCI Communication 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.