Correlation Between Vanguard Small-cap and Vanguard Mid-cap
Can any of the company-specific risk be diversified away by investing in both Vanguard Small-cap 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 Vanguard Small-cap 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 Vanguard Small Cap Value and Vanguard Mid Cap Value, you can compare the effects of market volatilities on Vanguard Small-cap 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 Vanguard Small-cap with a short position of Vanguard Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Vanguard Mid-cap.
Diversification Opportunities for Vanguard Small-cap and Vanguard Mid-cap
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and Vanguard Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap and Vanguard Small-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 Small Cap Value 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 Vanguard Small-cap i.e., Vanguard Small-cap and Vanguard Mid-cap go up and down completely randomly.
Pair Corralation between Vanguard Small-cap and Vanguard Mid-cap
Assuming the 90 days horizon Vanguard Small Cap Value is expected to generate 1.42 times more return on investment than Vanguard Mid-cap. However, Vanguard Small-cap is 1.42 times more volatile than Vanguard Mid Cap Value. It trades about 0.09 of its potential returns per unit of risk. Vanguard Mid Cap Value is currently generating about 0.13 per unit of risk. If you would invest 7,734 in Vanguard Small Cap Value on August 27, 2024 and sell it today you would earn a total of 1,459 from holding Vanguard Small Cap Value or generate 18.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. Vanguard Mid Cap Value
Performance |
| Timeline |
| Vanguard Small Cap |
| Vanguard Mid Cap |
Vanguard Small-cap and Vanguard Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small-cap and Vanguard Mid-cap
The main advantage of trading using opposite Vanguard Small-cap and Vanguard Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap 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.| Vanguard Small-cap vs. Vanguard Mid Cap Value | Vanguard Small-cap vs. Vanguard Value Index | Vanguard Small-cap vs. Vanguard Small Cap Growth | Vanguard Small-cap vs. Vanguard Emerging Markets |
| Vanguard Mid-cap vs. Vanguard Materials Index | Vanguard Mid-cap vs. Vanguard Limited Term Tax Exempt | Vanguard Mid-cap vs. Vanguard Limited Term Tax Exempt | Vanguard Mid-cap vs. Vanguard Global Minimum |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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