Correlation Between IShares 25 and Vanguard Extended

Can any of the company-specific risk be diversified away by investing in both IShares 25 and Vanguard Extended 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 25 and Vanguard Extended into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 25 Year and Vanguard Extended Duration, you can compare the effects of market volatilities on IShares 25 and Vanguard Extended 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 25 with a short position of Vanguard Extended. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 25 and Vanguard Extended.

Diversification Opportunities for IShares 25 and Vanguard Extended

0.99

Correlation Coefficient

IShares 25  Vanguard Extended

No risk reduction

The 3 months correlation between IShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares 25 Year and Vanguard Extended Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended and IShares 25 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 25 Year are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended has no effect on the direction of IShares 25 i.e., IShares 25 and Vanguard Extended go up and down completely randomly.

Pair Corralation between IShares 25 and Vanguard Extended

Given the investment horizon of 90 days iShares 25 Year is expected to under-perform the Vanguard Extended. In addition to that, IShares 25 is 1.12 times more volatile than Vanguard Extended Duration. It trades about -0.02 of its total potential returns per unit of risk. Vanguard Extended Duration is currently generating about -0.01 per unit of volatility. If you would invest  8,357  in Vanguard Extended Duration on December 2, 2024 and sell it today you would lose (1,067) from holding Vanguard Extended Duration or give up 12.77% of portfolio value over 90 days.

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

iShares 25 Year  vs.  Vanguard Extended Duration

iShares 25 Year

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares 25 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IShares 25 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Extended

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Extended Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Vanguard Extended is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares 25 and Vanguard Extended

The main advantage of trading using opposite IShares 25 and Vanguard Extended positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 25 position performs unexpectedly, Vanguard Extended 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 Extended will offset losses from the drop in Vanguard Extended's long position.

The idea behind iShares 25 Year and Vanguard Extended Duration 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.