Correlation Between IShares MSCI and Vanguard Total

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

By analyzing existing cross correlation between iShares MSCI ACWI and Vanguard Total World, you can compare the effects of market volatilities on IShares MSCI and Vanguard Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard Total.

Diversification Opportunities for IShares MSCI and Vanguard Total

0.99

Correlation Coefficient

IShares MSCI  Vanguard Total

No risk reduction

The 3 months correlation between IShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI ACWI and Vanguard Total World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total 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 ACWI are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total World has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard Total go up and down completely randomly.

Pair Corralation between IShares MSCI and Vanguard Total

Given the investment horizon of 90 days iShares MSCI ACWI is expected to generate 1.0 times more return on investment than Vanguard Total. However, IShares MSCI is 1.0 times more volatile than Vanguard Total World. It trades about 0.08 of its potential returns per unit of risk. Vanguard Total World is currently generating about 0.08 per unit of risk. If you would invest  14,674  in iShares MSCI ACWI on January 29, 2024 and sell it today you would earn a total of  2,764  from holding iShares MSCI ACWI or generate 18.84% 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 ACWI  vs.  Vanguard Total World

iShares MSCI ACWI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI ACWI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares MSCI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Vanguard Total World

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total World are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard Total is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares MSCI and Vanguard Total

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

The idea behind iShares MSCI ACWI and Vanguard Total World 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.