Correlation Between Vanguard Mid and Vanguard Large

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

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

Diversification Opportunities for Vanguard Mid and Vanguard Large

0.74

Correlation Coefficient

Vanguard Mid  Vanguard Large

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Value and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap and Vanguard Mid 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 Value are associated (or correlated) with Vanguard Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Vanguard Large go up and down completely randomly.

Pair Corralation between Vanguard Mid and Vanguard Large

Assuming the 90 days horizon Vanguard Mid is expected to generate 1.73 times less return on investment than Vanguard Large. But when comparing it to its historical volatility, Vanguard Mid Cap Value is 1.03 times less risky than Vanguard Large. It trades about 0.12 of its potential returns per unit of risk. Vanguard Large Cap Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  53,136  in Vanguard Large Cap Index on September 12, 2024 and sell it today you would earn a total of  4,567  from holding Vanguard Large Cap Index or generate 8.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Vanguard Mid Cap Value  vs.  Vanguard Large Cap Index

Vanguard Mid Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Large Cap

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Mid and Vanguard Large

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

The idea behind Vanguard Mid Cap Value and Vanguard Large Cap Index 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.