Correlation Between Vanguard Mid and Extended Market
Can any of the company-specific risk be diversified away by investing in both Vanguard Mid and Extended Market 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 Extended Market 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 Extended Market Index, you can compare the effects of market volatilities on Vanguard Mid and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Mid and Extended Market.
Diversification Opportunities for Vanguard Mid and Extended Market
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Extended is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mid Cap Index and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Vanguard Mid i.e., Vanguard Mid and Extended Market go up and down completely randomly.
Pair Corralation between Vanguard Mid and Extended Market
Assuming the 90 days horizon Vanguard Mid is expected to generate 1.12 times less return on investment than Extended Market. But when comparing it to its historical volatility, Vanguard Mid Cap Index is 1.29 times less risky than Extended Market. It trades about 0.08 of its potential returns per unit of risk. Extended Market Index is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,702 in Extended Market Index on September 12, 2024 and sell it today you would earn a total of 764.00 from holding Extended Market Index or generate 44.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Mid Cap Index vs. Extended Market Index
Performance |
| Timeline |
| Vanguard Mid Cap |
| Extended Market Index |
Vanguard Mid and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Mid and Extended Market
The main advantage of trading using opposite Vanguard Mid and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Mid position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Vanguard Mid vs. Vanguard Mid Cap Index | Vanguard Mid vs. SCOR PK | Vanguard Mid vs. Morningstar Unconstrained Allocation | Vanguard Mid vs. Via Renewables |
| Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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