Correlation Between IShares MSCI and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Vanguard FTSE 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 FTSE 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 FTSE All World, you can compare the effects of market volatilities on IShares MSCI and Vanguard FTSE 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 FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard FTSE.
Diversification Opportunities for IShares MSCI and Vanguard FTSE
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI EAFE and Vanguard FTSE All-World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All-World 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 FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All-World has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard FTSE go up and down completely randomly.
Pair Corralation between IShares MSCI and Vanguard FTSE
Considering the 90-day investment horizon IShares MSCI is expected to generate 1.05 times less return on investment than Vanguard FTSE. In addition to that, IShares MSCI is 1.03 times more volatile than Vanguard FTSE All World. It trades about 0.05 of its total potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.06 per unit of volatility. If you would invest 10,286 in Vanguard FTSE All World on December 20, 2023 and sell it today you would earn a total of 1,209 from holding Vanguard FTSE All World or generate 11.75% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
IShares MSCI EAFE vs. Vanguard FTSE All-World
Performance |
Timeline |
IShares MSCI EAFE |
Vanguard FTSE All-World |
IShares MSCI and Vanguard FTSE Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with IShares MSCI and Vanguard FTSE
The main advantage of trading using opposite IShares MSCI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Vanguard FTSE 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 FTSE will offset losses from the drop in Vanguard FTSE's long position.IShares MSCI vs. SPDR Portfolio High | IShares MSCI vs. Invesco Senior Loan | IShares MSCI vs. Vanguard Total Stock | IShares MSCI vs. IShares Russell 3000 |
Vanguard FTSE vs. SPDR Portfolio High | Vanguard FTSE vs. Invesco Senior Loan | Vanguard FTSE vs. Vanguard Total Stock | Vanguard FTSE vs. IShares Russell 3000 |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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