Correlation Between Vanguard Value and Vanguard Mid

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

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

Diversification Opportunities for Vanguard Value and Vanguard Mid

0.98

Correlation Coefficient

Vanguard Value  Vanguard Mid

Almost no diversification

The 3 months correlation between Vanguard and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and Vanguard Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Value 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 Value Index are associated (or correlated) with Vanguard Mid. 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 Value i.e., Vanguard Value and Vanguard Mid go up and down completely randomly.

Pair Corralation between Vanguard Value and Vanguard Mid

Considering the 90-day investment horizon Vanguard Value is expected to generate 1.24 times less return on investment than Vanguard Mid. But when comparing it to its historical volatility, Vanguard Value Index is 1.0 times less risky than Vanguard Mid. It trades about 0.17 of its potential returns per unit of risk. Vanguard Mid Cap Value is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  16,202  in Vanguard Mid Cap Value on September 1, 2024 and sell it today you would earn a total of  1,416  from holding Vanguard Mid Cap Value or generate 8.74% return on investment over 90 days.

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

Vanguard Value Index  vs.  Vanguard Mid Cap Value

Vanguard Value Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Mid Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Value are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Value and Vanguard Mid

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

The idea behind Vanguard Value Index and Vanguard Mid Cap Value 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.