Correlation Between Morningstar Defensive and Vanguard Mid-cap
Can any of the company-specific risk be diversified away by investing in both Morningstar Defensive and Vanguard Mid-cap 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 Morningstar Defensive and Vanguard Mid-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Defensive Bond and Vanguard Mid Cap Index, you can compare the effects of market volatilities on Morningstar Defensive and Vanguard Mid-cap 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 Morningstar Defensive with a short position of Vanguard Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and Vanguard Mid-cap.
Diversification Opportunities for Morningstar Defensive and Vanguard Mid-cap
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Morningstar and Vanguard is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond 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 and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with Vanguard Mid-cap. 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 has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Vanguard Mid-cap go up and down completely randomly.
Pair Corralation between Morningstar Defensive and Vanguard Mid-cap
Assuming the 90 days horizon Morningstar Defensive is expected to generate 2.59 times less return on investment than Vanguard Mid-cap. But when comparing it to its historical volatility, Morningstar Defensive Bond is 5.54 times less risky than Vanguard Mid-cap. It trades about 0.13 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 28,218 in Vanguard Mid Cap Index on October 16, 2024 and sell it today you would earn a total of 7,413 from holding Vanguard Mid Cap Index or generate 26.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Morningstar Defensive Bond vs. Vanguard Mid Cap Index
Performance |
| Timeline |
| Morningstar Defensive |
| Vanguard Mid Cap |
Morningstar Defensive and Vanguard Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Defensive and Vanguard Mid-cap
The main advantage of trading using opposite Morningstar Defensive and Vanguard Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Defensive position performs unexpectedly, Vanguard Mid-cap 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-cap will offset losses from the drop in Vanguard Mid-cap's long position.| Morningstar Defensive vs. Short Real Estate | Morningstar Defensive vs. Redwood Real Estate | Morningstar Defensive vs. Pender Real Estate | Morningstar Defensive vs. Prudential Real Estate |
| Vanguard Mid-cap vs. T Rowe Price | Vanguard Mid-cap vs. Franklin Government Money | Vanguard Mid-cap vs. Oklahoma Municipal Fund | Vanguard Mid-cap vs. Morningstar Defensive Bond |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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