Correlation Between IShares Currency and Vanguard

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

By analyzing existing cross correlation between iShares Currency Hedged and Vanguard SP 500, you can compare the effects of market volatilities on IShares Currency and Vanguard 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 Currency with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Currency and Vanguard.

Diversification Opportunities for IShares Currency and Vanguard

0.93

Correlation Coefficient

IShares Currency  Vanguard

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Currency Hedged and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and IShares Currency 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 Currency Hedged are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of IShares Currency i.e., IShares Currency and Vanguard go up and down completely randomly.

Pair Corralation between IShares Currency and Vanguard

Given the investment horizon of 90 days iShares Currency Hedged is expected to generate 0.83 times more return on investment than Vanguard. However, iShares Currency Hedged is 1.21 times less risky than Vanguard. It trades about 0.16 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.01 per unit of risk. If you would invest  3,503  in iShares Currency Hedged on January 25, 2024 and sell it today you would earn a total of  139.00  from holding iShares Currency Hedged or generate 3.97% return on investment over 90 days.

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

iShares Currency Hedged  vs.  Vanguard SP 500

iShares Currency Hedged

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Currency Hedged are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, IShares Currency may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Vanguard SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Currency and Vanguard

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

The idea behind iShares Currency Hedged and Vanguard SP 500 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.