Correlation Between Vanguard FTSE and IShares Core

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

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

Diversification Opportunities for Vanguard FTSE and IShares Core

0.99

Correlation Coefficient

Vanguard FTSE  IShares Core

No risk reduction

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

Pair Corralation between Vanguard FTSE and IShares Core

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to generate 0.9 times more return on investment than IShares Core. However, Vanguard FTSE Emerging is 1.11 times less risky than IShares Core. It trades about 0.0 of its potential returns per unit of risk. iShares Core MSCI is currently generating about -0.04 per unit of risk. If you would invest  4,161  in Vanguard FTSE Emerging on January 24, 2024 and sell it today you would lose (3.00) from holding Vanguard FTSE Emerging or give up 0.07% of portfolio value over 90 days.

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

Vanguard FTSE Emerging  vs.  iShares Core MSCI

Vanguard FTSE Emerging

Risk-Adjusted Performance

5 of 100

Modest

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

iShares Core MSCI

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, IShares Core is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard FTSE and IShares Core

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

The idea behind Vanguard FTSE Emerging and iShares Core MSCI 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.