Correlation Between Vanguard Mid-cap and IShares 1

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Can any of the company-specific risk be diversified away by investing in both Vanguard Mid-cap and IShares 1 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-cap and IShares 1 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 1 5 Year, you can compare the effects of market volatilities on Vanguard Mid-cap and IShares 1 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-cap with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid-cap and IShares 1.

Diversification Opportunities for Vanguard Mid-cap and IShares 1

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD MID-CAP INDEX and IShares 1-5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares 1-5 Year and Vanguard Mid-cap 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 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares 1-5 Year has no effect on the direction of Vanguard Mid-cap i.e., Vanguard Mid-cap and IShares 1 go up and down completely randomly.

Pair Corralation between Vanguard Mid-cap and IShares 1

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to generate 23.0 times more return on investment than IShares 1. However, Vanguard Mid-cap is 23.0 times more volatile than IShares 1 5 Year. It trades about 0.05 of its potential returns per unit of risk. IShares 1 5 Year is currently generating about 0.21 per unit of risk. If you would invest  25,907  in Vanguard Mid Cap Index on December 20, 2023 and sell it today you would earn a total of  4,173  from holding Vanguard Mid Cap Index or generate 16.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy49.09%
ValuesDaily Returns

VANGUARD MID-CAP INDEX  vs.  IShares 1-5 Year

 Performance 
       Timeline  
Vanguard Mid-cap Index 

Risk-Adjusted Performance

11 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 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile basic indicators, Vanguard Mid-cap may actually be approaching a critical reversion point that can send shares even higher in April 2024.
IShares 1-5 Year 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days IShares 1 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares 1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Mid-cap and IShares 1 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Mid-cap and IShares 1

The main advantage of trading using opposite Vanguard Mid-cap and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid-cap position performs unexpectedly, IShares 1 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 1 will offset losses from the drop in IShares 1's long position.
The idea behind Vanguard Mid Cap Index and IShares 1 5 Year 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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