Correlation Between IShares Core and Vanguard FTSE

Can any of the company-specific risk be diversified away by investing in both IShares Core and Vanguard FTSE 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 FTSE 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 FTSE Pacific, you can compare the effects of market volatilities on IShares Core and Vanguard FTSE 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 FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Vanguard FTSE.

Diversification Opportunities for IShares Core and Vanguard FTSE

0.83

Correlation Coefficient

IShares Core  Vanguard FTSE

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Vanguard FTSE Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Pacific 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 FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Pacific has no effect on the direction of IShares Core i.e., IShares Core and Vanguard FTSE go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard FTSE

Given the investment horizon of 90 days IShares Core is expected to generate 1.2 times less return on investment than Vanguard FTSE. But when comparing it to its historical volatility, iShares Core MSCI is 1.04 times less risky than Vanguard FTSE. It trades about 0.05 of its potential returns per unit of risk. Vanguard FTSE Pacific is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,494  in Vanguard FTSE Pacific on September 7, 2024 and sell it today you would earn a total of  72.00  from holding Vanguard FTSE Pacific or generate 0.96% return on investment over 90 days.

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

iShares Core MSCI  vs.  Vanguard FTSE Pacific

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. Even with relatively invariable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard FTSE Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Pacific are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Core and Vanguard FTSE

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

The idea behind iShares Core MSCI and Vanguard FTSE Pacific 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.