Correlation Between Vanguard Mid-cap and Longleaf Partners

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Can any of the company-specific risk be diversified away by investing in both Vanguard Mid-cap and Longleaf Partners 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-cap and Longleaf Partners 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 Longleaf Partners Small Cap, you can compare the effects of market volatilities on Vanguard Mid-cap and Longleaf Partners 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-cap with a short position of Longleaf Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid-cap and Longleaf Partners.

Diversification Opportunities for Vanguard Mid-cap and Longleaf Partners

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Longleaf is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Longleaf Partners Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners Small and Vanguard Mid-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 Mid Cap Index are associated (or correlated) with Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners Small has no effect on the direction of Vanguard Mid-cap i.e., Vanguard Mid-cap and Longleaf Partners go up and down completely randomly.

Pair Corralation between Vanguard Mid-cap and Longleaf Partners

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to generate 0.96 times more return on investment than Longleaf Partners. However, Vanguard Mid Cap Index is 1.04 times less risky than Longleaf Partners. It trades about 0.28 of its potential returns per unit of risk. Longleaf Partners Small Cap is currently generating about 0.26 per unit of risk. If you would invest  32,400  in Vanguard Mid Cap Index on September 5, 2024 and sell it today you would earn a total of  2,809  from holding Vanguard Mid Cap Index or generate 8.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Mid Cap Index  vs.  Longleaf Partners Small Cap

 Performance 
       Timeline  
Vanguard Mid Cap 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Mid-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Longleaf Partners Small 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Longleaf Partners Small Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Longleaf Partners may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Mid-cap and Longleaf Partners Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Mid-cap and Longleaf Partners

The main advantage of trading using opposite Vanguard Mid-cap and Longleaf Partners positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid-cap position performs unexpectedly, Longleaf Partners 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 Longleaf Partners will offset losses from the drop in Longleaf Partners' long position.
The idea behind Vanguard Mid Cap Index and Longleaf Partners Small Cap 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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