Correlation Between Vanguard Mid and IShares BB

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

Diversification Opportunities for Vanguard Mid and IShares BB

0.79

Correlation Coefficient

Vanguard Mid  IShares BB

Poor diversification

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

Pair Corralation between Vanguard Mid and IShares BB

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 3.24 times more return on investment than IShares BB. However, Vanguard Mid is 3.24 times more volatile than iShares BB Rated. It trades about 0.09 of its potential returns per unit of risk. iShares BB Rated is currently generating about 0.15 per unit of risk. If you would invest  23,443  in Vanguard Mid Cap Index on October 12, 2024 and sell it today you would earn a total of  3,196  from holding Vanguard Mid Cap Index or generate 13.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.47%
Values	Daily Returns

Vanguard Mid Cap Index  vs.  iShares BB Rated

Vanguard Mid Cap

Risk-Adjusted Performance

0 of 100

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.

iShares BB Rated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares BB Rated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, IShares BB 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 IShares BB

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

The idea behind Vanguard Mid Cap Index and iShares BB Rated 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.