Correlation Between Vanguard Mid-cap and Madison Mid

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

Diversification Opportunities for Vanguard Mid-cap and Madison Mid

0.94

Correlation Coefficient

Vanguard Mid-cap  Madison Mid

Almost no diversification

The 3 months correlation between Vanguard and Madison is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Madison Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Mid Cap 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 Madison Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Mid Cap has no effect on the direction of Vanguard Mid-cap i.e., Vanguard Mid-cap and Madison Mid go up and down completely randomly.

Pair Corralation between Vanguard Mid-cap and Madison Mid

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to generate 0.76 times more return on investment than Madison Mid. However, Vanguard Mid Cap Index is 1.31 times less risky than Madison Mid. It trades about 0.27 of its potential returns per unit of risk. Madison Mid Cap is currently generating about 0.14 per unit of risk. If you would invest  31,343  in Vanguard Mid Cap Index on August 31, 2024 and sell it today you would earn a total of  3,815  from holding Vanguard Mid Cap Index or generate 12.17% return on investment over 90 days.

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

Vanguard Mid Cap Index  vs.  Madison Mid Cap

Vanguard Mid Cap

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 20 (%) 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 December 2024.

Madison Mid Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Mid Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Madison Mid may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Mid-cap and Madison Mid

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

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