Correlation Between Vanguard Small and IShares Russell
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and IShares Russell 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 IShares Russell 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 iShares Russell 1000, you can compare the effects of market volatilities on Vanguard Small and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and IShares Russell.
Diversification Opportunities for Vanguard Small and IShares Russell
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and iShares Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 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 IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 1000 has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares Russell go up and down completely randomly.
Pair Corralation between Vanguard Small and IShares Russell
Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the IShares Russell. In addition to that, Vanguard Small is 1.35 times more volatile than iShares Russell 1000. It trades about -0.15 of its total potential returns per unit of risk. iShares Russell 1000 is currently generating about -0.07 per unit of volatility. If you would invest 17,565 in iShares Russell 1000 on January 26, 2024 and sell it today you would lose (203.00) from holding iShares Russell 1000 or give up 1.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Index vs. iShares Russell 1000
Performance |
| Timeline |
| Vanguard Small Cap |
| iShares Russell 1000 |
Vanguard Small and IShares Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and IShares Russell
The main advantage of trading using opposite Vanguard Small and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, IShares Russell 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 IShares Russell will offset losses from the drop in IShares Russell's long position.| Vanguard Small vs. Vanguard Mid Cap Index | Vanguard Small vs. Vanguard Small Cap Value | Vanguard Small vs. Vanguard FTSE Emerging | Vanguard Small vs. Vanguard Large Cap Index |
| IShares Russell vs. iShares Russell 1000 | IShares Russell vs. iShares Russell 2000 | IShares Russell vs. iShares Russell 2000 | IShares Russell vs. iShares Russell Mid Cap |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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