Correlation Between IShares Core and Vanguard Funds

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

By analyzing existing cross correlation between iShares Core DAX and Vanguard Funds Public, you can compare the effects of market volatilities on IShares Core and Vanguard Funds 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 Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Vanguard Funds.

Diversification Opportunities for IShares Core and Vanguard Funds

0.58

Correlation Coefficient

IShares Core  Vanguard Funds

Very weak diversification

The 3 months correlation between IShares and Vanguard is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core DAX and Vanguard Funds Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds Public 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 DAX are associated (or correlated) with Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds Public has no effect on the direction of IShares Core i.e., IShares Core and Vanguard Funds go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Funds

Assuming the 90 days trading horizon IShares Core is expected to generate 1.07 times less return on investment than Vanguard Funds. But when comparing it to its historical volatility, iShares Core DAX is 1.34 times less risky than Vanguard Funds. It trades about 0.2 of its potential returns per unit of risk. Vanguard Funds Public is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  10,175  in Vanguard Funds Public on October 25, 2024 and sell it today you would earn a total of  921.00  from holding Vanguard Funds Public or generate 9.05% return on investment over 90 days.

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

iShares Core DAX  vs.  Vanguard Funds Public

iShares Core DAX

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core DAX are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard Funds Public

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds Public are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vanguard Funds may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Core and Vanguard Funds

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

The idea behind iShares Core DAX and Vanguard Funds Public 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.