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
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.
SPDR SP 400 vs. Vanguard Mid-Cap Index
SPDR SP and Vanguard Mid Volatility Contrast
Pair Trading with SPDR SP and Vanguard MidThe 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.
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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