Correlation Between Vanguard Mid-cap and IShares Short

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

Diversification Opportunities for Vanguard Mid-cap and IShares Short

0.34

Correlation Coefficient

Vanguard Mid-cap  IShares Short

Weak diversification

The 3 months correlation between Vanguard and IShares is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and iShares Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Short Duration 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Short Duration has no effect on the direction of Vanguard Mid-cap i.e., Vanguard Mid-cap and IShares Short go up and down completely randomly.

Pair Corralation between Vanguard Mid-cap and IShares Short

Assuming the 90 days horizon Vanguard Mid Cap Index is expected to under-perform the IShares Short. In addition to that, Vanguard Mid-cap is 2.08 times more volatile than iShares Short Duration. It trades about -0.15 of its total potential returns per unit of risk. iShares Short Duration is currently generating about -0.02 per unit of volatility. If you would invest  570.00  in iShares Short Duration on January 26, 2024 and sell it today you would lose (1.00) from holding iShares Short Duration or give up 0.18% of portfolio value over 90 days.

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

Vanguard Mid Cap Index  vs.  iShares Short Duration

Vanguard Mid Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Mid-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Short Duration

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days iShares Short Duration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Short is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Mid-cap and IShares Short

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

The idea behind Vanguard Mid Cap Index and iShares Short Duration 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.