Correlation Between Vanguard Total and Mid Cap

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

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

Diversification Opportunities for Vanguard Total and Mid Cap

0.93

Correlation Coefficient

Vanguard Total  Mid Cap

Almost no diversification

The 3 months correlation between Vanguard and Mid is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and Mid Cap Spdr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Spdr and Vanguard Total 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 Total Stock are associated (or correlated) with 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 Mid Cap Spdr has no effect on the direction of Vanguard Total i.e., Vanguard Total and Mid Cap go up and down completely randomly.

Pair Corralation between Vanguard Total and Mid Cap

Assuming the 90 days horizon Vanguard Total Stock is expected to under-perform the Mid Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Total Stock is 1.05 times less risky than Mid Cap. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Mid Cap Spdr is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  56,849  in Mid Cap Spdr on December 29, 2024 and sell it today you would lose (2,242) from holding Mid Cap Spdr or give up 3.94% of portfolio value over 90 days.

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

Vanguard Total Stock  vs.  Mid Cap Spdr

Vanguard Total Stock

Risk-Adjusted Performance

Very Weak

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

Mid Cap Spdr

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap Spdr has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, 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 Total and Mid Cap

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

The idea behind Vanguard Total Stock and Mid Cap Spdr 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.