Correlation Between Vanguard Mid and KFA Mount

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

Diversification Opportunities for Vanguard Mid and KFA Mount

-0.22

Correlation Coefficient

Vanguard Mid  KFA Mount

Very good diversification

The 3 months correlation between Vanguard and KFA is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and KFA Mount Lucas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFA Mount Lucas 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 KFA Mount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFA Mount Lucas has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and KFA Mount go up and down completely randomly.

Pair Corralation between Vanguard Mid and KFA Mount

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 1.3 times more return on investment than KFA Mount. However, Vanguard Mid is 1.3 times more volatile than KFA Mount Lucas. It trades about -0.02 of its potential returns per unit of risk. KFA Mount Lucas is currently generating about -0.08 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard Mid Cap Index  vs.  KFA Mount Lucas

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.

KFA Mount Lucas

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vanguard Mid and KFA Mount

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

The idea behind Vanguard Mid Cap Index and KFA Mount Lucas 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.