Correlation Between Vanguard Strategic and Vanguard Mid-cap

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

By analyzing existing cross correlation between Vanguard Strategic Equity and Vanguard Mid Cap Index, you can compare the effects of market volatilities on Vanguard Strategic and Vanguard Mid-cap 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 Strategic with a short position of Vanguard Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Strategic and Vanguard Mid-cap.

Diversification Opportunities for Vanguard Strategic and Vanguard Mid-cap

0.95

Correlation Coefficient

Vanguard Strategic  Vanguard Mid-cap

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Strategic Equity and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Strategic 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 Strategic Equity are associated (or correlated) with Vanguard Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of Vanguard Strategic i.e., Vanguard Strategic and Vanguard Mid-cap go up and down completely randomly.

Pair Corralation between Vanguard Strategic and Vanguard Mid-cap

Assuming the 90 days horizon Vanguard Strategic Equity is expected to under-perform the Vanguard Mid-cap. In addition to that, Vanguard Strategic is 1.24 times more volatile than Vanguard Mid Cap Index. It trades about -0.09 of its total potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about -0.04 per unit of volatility. If you would invest  35,611  in Vanguard Mid Cap Index on December 31, 2024 and sell it today you would lose (939.00) from holding Vanguard Mid Cap Index or give up 2.64% of portfolio value over 90 days.

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

Vanguard Strategic Equity  vs.  Vanguard Mid Cap Index

Vanguard Strategic Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Strategic Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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 fund investors. In spite of fairly strong basic indicators, Vanguard Mid-cap 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 Strategic and Vanguard Mid-cap

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

The idea behind Vanguard Strategic Equity and Vanguard Mid Cap Index 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.