Correlation Between Vanguard Small-cap and Sp Midcap

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

By analyzing existing cross correlation between Vanguard Small Cap Value and Sp Midcap 400, you can compare the effects of market volatilities on Vanguard Small-cap and Sp Midcap 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 Small-cap with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Sp Midcap.

Diversification Opportunities for Vanguard Small-cap and Sp Midcap

0.98

Correlation Coefficient

Vanguard Small-cap  Sp Midcap

Almost no diversification

The 3 months correlation between Vanguard and RYAVX is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Sp Midcap 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap 400 and Vanguard Small-cap 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 Small Cap Value are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap 400 has no effect on the direction of Vanguard Small-cap i.e., Vanguard Small-cap and Sp Midcap go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Sp Midcap

Assuming the 90 days horizon Vanguard Small Cap Value is expected to under-perform the Sp Midcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Value is 1.14 times less risky than Sp Midcap. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Sp Midcap 400 is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  7,222  in Sp Midcap 400 on December 29, 2024 and sell it today you would lose (368.00) from holding Sp Midcap 400 or give up 5.1% of portfolio value over 90 days.

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

Vanguard Small Cap Value  vs.  Sp Midcap 400

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sp Midcap 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp Midcap 400 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sp Midcap 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 Small-cap and Sp Midcap

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

The idea behind Vanguard Small Cap Value and Sp Midcap 400 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..