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 under-perform the IShares Dow. In addition to that, Vanguard Total is 1.0 times more volatile than iShares Dow Jones. It trades about -0.04 of its total potential returns per unit of risk. iShares Dow Jones is currently generating about -0.03 per unit of volatility. If you would invest  12,496  in iShares Dow Jones on February 3, 2024 and sell it today you would lose (156.00) from holding iShares Dow Jones or give up 1.25% of portfolio value over 90 days.

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

Vanguard Total Stock  vs.  iShares Dow Jones

Vanguard Total Stock

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

iShares Dow Jones

Risk-Adjusted Performance

5 of 100

Modest

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

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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..