Correlation Between Vanguard Mid and IShares Trust

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

Diversification Opportunities for Vanguard Mid and IShares Trust

-0.65

Correlation Coefficient

Vanguard Mid  IShares Trust

Excellent diversification

The 3 months correlation between Vanguard and IShares is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and IShares Trust go up and down completely randomly.

Pair Corralation between Vanguard Mid and IShares Trust

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 0.98 times more return on investment than IShares Trust. However, Vanguard Mid Cap Index is 1.02 times less risky than IShares Trust. It trades about 0.19 of its potential returns per unit of risk. iShares Trust is currently generating about -0.13 per unit of risk. If you would invest  25,526  in Vanguard Mid Cap Index on September 13, 2024 and sell it today you would earn a total of  2,225  from holding Vanguard Mid Cap Index or generate 8.72% return on investment over 90 days.

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

Vanguard Mid Cap Index  vs.  iShares Trust

Vanguard Mid Cap

Risk-Adjusted Performance

15 of 100

Solid

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

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Mid and IShares Trust

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

The idea behind Vanguard Mid Cap Index and iShares Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.