Correlation Between Vanguard Mid and SOFR

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

Diversification Opportunities for Vanguard Mid and SOFR

0.75

Correlation Coefficient

Vanguard Mid  SOFR

Poor diversification

The 3 months correlation between Vanguard and SOFR is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and SOFR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOFR 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 Index are associated (or correlated) with SOFR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOFR has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and SOFR go up and down completely randomly.

Pair Corralation between Vanguard Mid and SOFR

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 23.21 times more return on investment than SOFR. However, Vanguard Mid is 23.21 times more volatile than SOFR. It trades about 0.05 of its potential returns per unit of risk. SOFR is currently generating about 0.48 per unit of risk. If you would invest  26,112  in Vanguard Mid Cap Index on September 23, 2024 and sell it today you would earn a total of  680.00  from holding Vanguard Mid Cap Index or generate 2.6% return on investment over 90 days.

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

Vanguard Mid Cap Index  vs.  SOFR

Vanguard Mid Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard Mid and SOFR

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

The idea behind Vanguard Mid Cap Index and SOFR 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.