Correlation Between SPDR SP and Vanguard Mid

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Can any of the company-specific risk be diversified away by investing in both SPDR SP and Vanguard 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 SPDR SP and Vanguard Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 400 and Vanguard Mid Cap Index, you can compare the effects of market volatilities on SPDR SP and Vanguard 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 SPDR SP with a short position of Vanguard Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard Mid.

Diversification Opportunities for SPDR SP and Vanguard Mid

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between SPDR and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Vanguard Mid-Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid-Cap Index and SPDR SP 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 SPDR SP 400 are associated (or correlated) with Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid-Cap Index has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard Mid go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard Mid

Given the investment horizon of 90 days SPDR SP 400 is expected to under-perform the Vanguard Mid. In addition to that, SPDR SP is 1.28 times more volatile than Vanguard Mid Cap Index. It trades about -0.03 of its total potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.13 per unit of volatility. If you would invest  23,132  in Vanguard Mid Cap Index on December 2, 2023 and sell it today you would earn a total of  924.00  from holding Vanguard Mid Cap Index or generate 3.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SPDR SP 400  vs.  Vanguard Mid-Cap Index

 Performance 
       Timeline  
SPDR SP 400 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Vanguard Mid-Cap Index 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Vanguard Mid may actually be approaching a critical reversion point that can send shares even higher in April 2024.

SPDR SP and Vanguard Mid Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Vanguard Mid

The main advantage of trading using opposite SPDR SP and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Vanguard 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 Vanguard Mid will offset losses from the drop in Vanguard Mid's long position.
The idea behind SPDR SP 400 and Vanguard Mid 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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