Correlation Between Vanguard Total and IShares Dow

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

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

Diversification Opportunities for Vanguard Total and IShares Dow

1.0

Correlation Coefficient

Vanguard Total  IShares Dow

No risk reduction

The 3 months correlation between Vanguard and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and iShares Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Dow Jones and Vanguard Total 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 Total Stock are associated (or correlated) with IShares Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Dow Jones has no effect on the direction of Vanguard Total i.e., Vanguard Total and IShares Dow go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares Dow

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.98 times more return on investment than IShares Dow. However, Vanguard Total Stock is 1.02 times less risky than IShares Dow. It trades about 0.35 of its potential returns per unit of risk. iShares Dow Jones is currently generating about 0.34 per unit of risk. If you would invest  24,768  in Vanguard Total Stock on February 17, 2024 and sell it today you would earn a total of  1,462  from holding Vanguard Total Stock or generate 5.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Vanguard Total Stock  vs.  iShares Dow Jones

Vanguard Total Stock

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in June 2024.

iShares Dow Jones

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Dow Jones are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, IShares Dow may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Vanguard Total and IShares Dow

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

The idea behind Vanguard Total Stock and iShares Dow Jones 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.