Correlation Between Vanguard Materials and IShares North

Can any of the company-specific risk be diversified away by investing in both Vanguard Materials and IShares North 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 Materials and IShares North into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Materials Index and iShares North American, you can compare the effects of market volatilities on Vanguard Materials and IShares North 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 Materials with a short position of IShares North. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and IShares North.

Diversification Opportunities for Vanguard Materials and IShares North

0.87

Correlation Coefficient

Vanguard Materials  IShares North

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and iShares North American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares North American and Vanguard Materials 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 Materials Index are associated (or correlated) with IShares North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares North American has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and IShares North go up and down completely randomly.

Pair Corralation between Vanguard Materials and IShares North

Considering the 90-day investment horizon Vanguard Materials is expected to generate 1.0 times less return on investment than IShares North. But when comparing it to its historical volatility, Vanguard Materials Index is 1.14 times less risky than IShares North. It trades about 0.06 of its potential returns per unit of risk. iShares North American is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,881  in iShares North American on January 30, 2024 and sell it today you would earn a total of  696.00  from holding iShares North American or generate 17.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.7%
Values	Daily Returns

Vanguard Materials Index  vs.  iShares North American

Vanguard Materials Index

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Vanguard Materials may actually be approaching a critical reversion point that can send shares even higher in May 2024.

iShares North American

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares North American are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, IShares North exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Materials and IShares North

The main advantage of trading using opposite Vanguard Materials and IShares North positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials position performs unexpectedly, IShares North 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 North will offset losses from the drop in IShares North's long position.

The idea behind Vanguard Materials Index and iShares North American 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.