Correlation Between IShares SP and Vanguard Total

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

By analyzing existing cross correlation between iShares SP 500 and Vanguard Total Market, you can compare the effects of market volatilities on IShares SP and Vanguard Total 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 SP with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Vanguard Total.

Diversification Opportunities for IShares SP and Vanguard Total

0.93

Correlation Coefficient

IShares SP  Vanguard Total

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and Vanguard Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Market and IShares SP 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 SP 500 are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Market has no effect on the direction of IShares SP i.e., IShares SP and Vanguard Total go up and down completely randomly.

Pair Corralation between IShares SP and Vanguard Total

Assuming the 90 days trading horizon IShares SP is expected to generate 1.68 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, iShares SP 500 is 1.02 times less risky than Vanguard Total. It trades about 0.14 of its potential returns per unit of risk. Vanguard Total Market is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  41,165  in Vanguard Total Market on September 3, 2024 and sell it today you would earn a total of  4,788  from holding Vanguard Total Market or generate 11.63% return on investment over 90 days.

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

iShares SP 500  vs.  Vanguard Total Market

iShares SP 500

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Total Market

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares SP and Vanguard Total

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

The idea behind iShares SP 500 and Vanguard Total Market 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .