Correlation Between Vanguard Mid and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Vanguard Mid and SPDR SP 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 SPDR SP 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 SPDR SP 400, you can compare the effects of market volatilities on Vanguard Mid and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and SPDR SP.

Diversification Opportunities for Vanguard Mid and SPDR SP

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Vanguard and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard Mid and SPDR SP

Allowing for the 90-day total investment horizon Vanguard Mid Cap Index is expected to generate 0.93 times more return on investment than SPDR SP. However, Vanguard Mid Cap Index is 1.08 times less risky than SPDR SP. It trades about -0.25 of its potential returns per unit of risk. SPDR SP 400 is currently generating about -0.28 per unit of risk. If you would invest  24,554  in Vanguard Mid Cap Index on January 20, 2024 and sell it today you would lose (1,042) from holding Vanguard Mid Cap Index or give up 4.24% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Mid Cap Index  vs.  SPDR SP 400

 Performance 
       Timeline  
Vanguard Mid Cap 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mid Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
SPDR SP 400 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Vanguard Mid and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Mid and SPDR SP

The main advantage of trading using opposite Vanguard Mid and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.
The idea behind Vanguard Mid Cap Index and SPDR SP 400 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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