Correlation Between Vanguard Small and Vanguard Mid

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Can any of the company-specific risk be diversified away by investing in both Vanguard Small and Vanguard Mid 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 Small and Vanguard Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Index and Vanguard Mid Cap Growth, you can compare the effects of market volatilities on Vanguard Small 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 Vanguard Small with a short position of Vanguard Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Vanguard Mid.

Diversification Opportunities for Vanguard Small and Vanguard Mid

VanguardVanguardDiversified AwayVanguardVanguardDiversified Away100%
0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Vanguard Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Small 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 Small Cap Index are associated (or correlated) with Vanguard Mid. 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 Vanguard Small i.e., Vanguard Small and Vanguard Mid go up and down completely randomly.

Pair Corralation between Vanguard Small and Vanguard Mid

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the Vanguard Mid. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Index is 1.1 times less risky than Vanguard Mid. The etf trades about -0.25 of its potential returns per unit of risk. The Vanguard Mid Cap Growth is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  27,257  in Vanguard Mid Cap Growth on November 25, 2024 and sell it today you would lose (1,066) from holding Vanguard Mid Cap Growth or give up 3.91% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard Small Cap Index  vs.  Vanguard Mid Cap Growth

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -4-20246
JavaScript chart by amCharts 3.21.15VB VOT
       Timeline  
Vanguard Small Cap 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb240245250255260
Vanguard Mid Cap 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Vanguard Mid Cap Growth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard Mid is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb255260265270275

Vanguard Small and Vanguard Mid Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.66-1.25-0.84-0.43-0.050.270.681.091.51.91 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15VB VOT
       Returns  

Pair Trading with Vanguard Small and Vanguard Mid

The main advantage of trading using opposite Vanguard Small and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small 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 Vanguard Small Cap Index and Vanguard Mid Cap Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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