Correlation Between Vanguard Mid and VictoryShares ESG

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

Diversification Opportunities for Vanguard Mid and VictoryShares ESG

-0.64

Correlation Coefficient

Vanguard Mid  VictoryShares ESG

Excellent diversification

The 3 months correlation between Vanguard and VictoryShares is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and VictoryShares ESG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares ESG 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 VictoryShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares ESG has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and VictoryShares ESG go up and down completely randomly.

Pair Corralation between Vanguard Mid and VictoryShares ESG

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 2.43 times more return on investment than VictoryShares ESG. However, Vanguard Mid is 2.43 times more volatile than VictoryShares ESG Corporate. It trades about 0.22 of its potential returns per unit of risk. VictoryShares ESG Corporate is currently generating about -0.01 per unit of risk. If you would invest  25,633  in Vanguard Mid Cap Index on August 30, 2024 and sell it today you would earn a total of  2,758  from holding Vanguard Mid Cap Index or generate 10.76% 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.  VictoryShares ESG Corporate

Vanguard Mid Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 17 (%) 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 December 2024.

VictoryShares ESG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VictoryShares ESG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, VictoryShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Mid and VictoryShares ESG

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

The idea behind Vanguard Mid Cap Index and VictoryShares ESG Corporate 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.