Correlation Between Vanguard Small and IShares Core

Can any of the company-specific risk be diversified away by investing in both Vanguard Small 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 Small 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 Small Cap Index and iShares Core MSCI, you can compare the effects of market volatilities on Vanguard Small 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 Small with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and IShares Core.

Diversification Opportunities for Vanguard Small and IShares Core

0.86

Correlation Coefficient

Vanguard Small  IShares Core

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index 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 Small 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 Small Cap Index 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 Small i.e., Vanguard Small and IShares Core go up and down completely randomly.

Pair Corralation between Vanguard Small and IShares Core

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 1.92 times less return on investment than IShares Core. In addition to that, Vanguard Small is 1.33 times more volatile than iShares Core MSCI. It trades about 0.04 of its total potential returns per unit of risk. iShares Core MSCI is currently generating about 0.09 per unit of volatility. If you would invest  7,184  in iShares Core MSCI on February 24, 2024 and sell it today you would earn a total of  284.00  from holding iShares Core MSCI or generate 3.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Small Cap Index  vs.  iShares Core MSCI

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Core MSCI

Risk-Adjusted Performance

7 of 100

OK

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 somewhat strong technical and fundamental indicators, IShares Core is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and IShares Core

The main advantage of trading using opposite Vanguard Small and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small 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 Small Cap Index 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.