Correlation Between IShares Regional and Vanguard Index

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

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

Diversification Opportunities for IShares Regional and Vanguard Index

0.69

Correlation Coefficient

IShares Regional  Vanguard Index

Poor diversification

The 3 months correlation between IShares and Vanguard is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and Vanguard Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Funds and IShares Regional 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 Regional Banks are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Funds has no effect on the direction of IShares Regional i.e., IShares Regional and Vanguard Index go up and down completely randomly.

Pair Corralation between IShares Regional and Vanguard Index

Assuming the 90 days trading horizon iShares Regional Banks is expected to under-perform the Vanguard Index. But the etf apears to be less risky and, when comparing its historical volatility, iShares Regional Banks is 2.72 times less risky than Vanguard Index. The etf trades about -0.05 of its potential returns per unit of risk. The Vanguard Index Funds is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,123,795  in Vanguard Index Funds on October 6, 2024 and sell it today you would earn a total of  1,205  from holding Vanguard Index Funds or generate 0.11% return on investment over 90 days.

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

iShares Regional Banks  vs.  Vanguard Index Funds

iShares Regional Banks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Regional showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Index Funds

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Funds are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Index may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Regional and Vanguard Index

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

The idea behind iShares Regional Banks and Vanguard Index Funds 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 CEOs Directory module to screen CEOs from public companies around the world.