Correlation Between Vanguard Large and IShares MSCI

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

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

Diversification Opportunities for Vanguard Large and IShares MSCI

0.84

Correlation Coefficient

Vanguard Large  IShares MSCI

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Large Cap Index and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and Vanguard Large 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 Large Cap Index are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Vanguard Large i.e., Vanguard Large and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Large and IShares MSCI

Allowing for the 90-day total investment horizon Vanguard Large Cap Index is expected to generate 0.9 times more return on investment than IShares MSCI. However, Vanguard Large Cap Index is 1.11 times less risky than IShares MSCI. It trades about -0.14 of its potential returns per unit of risk. iShares MSCI USA is currently generating about -0.19 per unit of risk. If you would invest  23,843  in Vanguard Large Cap Index on February 3, 2024 and sell it today you would lose (649.00) from holding Vanguard Large Cap Index or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard Large Cap Index  vs.  iShares MSCI USA

Vanguard Large Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares MSCI USA

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Large and IShares MSCI

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

The idea behind Vanguard Large Cap Index and iShares MSCI USA 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.