Correlation Between IShares Global and Vanguard Financials

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

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

Diversification Opportunities for IShares Global and Vanguard Financials

0.98

Correlation Coefficient

IShares Global  Vanguard Financials

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Financials and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and IShares Global 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 Global Financials are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of IShares Global i.e., IShares Global and Vanguard Financials go up and down completely randomly.

Pair Corralation between IShares Global and Vanguard Financials

Considering the 90-day investment horizon iShares Global Financials is expected to under-perform the Vanguard Financials. But the etf apears to be less risky and, when comparing its historical volatility, iShares Global Financials is 1.09 times less risky than Vanguard Financials. The etf trades about -0.04 of its potential returns per unit of risk. The Vanguard Financials Index is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,049  in Vanguard Financials Index on January 24, 2024 and sell it today you would lose (67.00) from holding Vanguard Financials Index or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

iShares Global Financials  vs.  Vanguard Financials Index

iShares Global Financials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Financials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Vanguard Financials Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Vanguard Financials may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with IShares Global and Vanguard Financials

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

The idea behind iShares Global Financials and Vanguard Financials Index 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.