Correlation Between Vanguard Total and IShares Morningstar

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

By analyzing existing cross correlation between Vanguard Total Bond and iShares Morningstar Small Cap, you can compare the effects of market volatilities on Vanguard Total and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and IShares Morningstar.

Diversification Opportunities for Vanguard Total and IShares Morningstar

-0.59

Correlation Coefficient

Vanguard Total  IShares Morningstar

Excellent diversification

The 3 months correlation between Vanguard and IShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Bond are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Vanguard Total i.e., Vanguard Total and IShares Morningstar go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares Morningstar

Considering the 90-day investment horizon Vanguard Total Bond is expected to under-perform the IShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Total Bond is 3.67 times less risky than IShares Morningstar. The etf trades about -0.02 of its potential returns per unit of risk. The iShares Morningstar Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,820  in iShares Morningstar Small Cap on August 30, 2024 and sell it today you would earn a total of  574.00  from holding iShares Morningstar Small Cap or generate 11.91% return on investment over 90 days.

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

Vanguard Total Bond  vs.  iShares Morningstar Small Cap

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Total Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Morningstar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile forward-looking signals, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Total and IShares Morningstar

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

The idea behind Vanguard Total Bond and iShares Morningstar Small Cap 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.