Correlation Between IShares MSCI and Vanguard Small

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Vanguard Small 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 IShares MSCI and Vanguard Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IShares MSCI EAFE and Vanguard Small Cap Index, you can compare the effects of market volatilities on IShares MSCI and Vanguard Small 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 IShares MSCI with a short position of Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard Small.

Diversification Opportunities for IShares MSCI and Vanguard Small

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI EAFE and Vanguard Small-Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small-Cap Index and IShares MSCI 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 IShares MSCI EAFE are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small-Cap Index has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard Small go up and down completely randomly.

Pair Corralation between IShares MSCI and Vanguard Small

Considering the 90-day investment horizon IShares MSCI is expected to generate 3.23 times less return on investment than Vanguard Small. But when comparing it to its historical volatility, IShares MSCI EAFE is 1.23 times less risky than Vanguard Small. It trades about 0.01 of its potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  19,982  in Vanguard Small Cap Index on December 29, 2023 and sell it today you would earn a total of  2,798  from holding Vanguard Small Cap Index or generate 14.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

IShares MSCI EAFE  vs.  Vanguard Small-Cap Index

 Performance 
       Timeline  
IShares MSCI EAFE 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI EAFE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vanguard Small-Cap Index 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in April 2024.

IShares MSCI and Vanguard Small Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares MSCI and Vanguard Small

The main advantage of trading using opposite IShares MSCI and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Vanguard Small 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 Small will offset losses from the drop in Vanguard Small's long position.
The idea behind IShares MSCI EAFE and Vanguard Small Cap Index 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.
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

Other Complementary Tools

ETFs
Find actively traded Exchange Traded Funds (ETF) from around the world
Portfolio Dashboard
Portfolio dashboard that provides centralized access to all your investments
Portfolio Comparator
Compare the composition, asset allocations and performance of any two portfolios in your account
Theme Ratings
Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance
Price Exposure Probability
Analyze equity upside and downside potential for a given time horizon across multiple markets
Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Financial Widgets
Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets
Commodity Channel
Use Commodity Channel Index to analyze current equity momentum