Correlation Between IShares Core and Vanguard Short

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

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

Diversification Opportunities for IShares Core and Vanguard Short

-0.16

Correlation Coefficient

IShares Core  Vanguard Short

Good diversification

The 3 months correlation between IShares and Vanguard is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Vanguard Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term and IShares Core 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 Core MSCI are associated (or correlated) with Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of IShares Core i.e., IShares Core and Vanguard Short go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Short

Given the investment horizon of 90 days iShares Core MSCI is expected to under-perform the Vanguard Short. In addition to that, IShares Core is 3.0 times more volatile than Vanguard Short Term Bond. It trades about -0.32 of its total potential returns per unit of risk. Vanguard Short Term Bond is currently generating about -0.11 per unit of volatility. If you would invest  7,618  in Vanguard Short Term Bond on March 18, 2024 and sell it today you would lose (60.00) from holding Vanguard Short Term Bond or give up 0.79% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  Vanguard Short Term Bond

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Short Term Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Short is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Core and Vanguard Short

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

The idea behind iShares Core MSCI and Vanguard Short Term Bond 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.