Correlation Between IShares Core and Vanguard Specialized

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

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

Diversification Opportunities for IShares Core and Vanguard Specialized

0.2

Correlation Coefficient

IShares Core  Vanguard Specialized

Modest diversification

The 3 months correlation between IShares and Vanguard is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Vanguard Specialized Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Specialized 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 SP are associated (or correlated) with Vanguard Specialized. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Specialized has no effect on the direction of IShares Core i.e., IShares Core and Vanguard Specialized go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Specialized

Assuming the 90 days trading horizon iShares Core SP is expected to generate 1.75 times more return on investment than Vanguard Specialized. However, IShares Core is 1.75 times more volatile than Vanguard Specialized Funds. It trades about -0.01 of its potential returns per unit of risk. Vanguard Specialized Funds is currently generating about -0.16 per unit of risk. If you would invest  250,850  in iShares Core SP on October 14, 2024 and sell it today you would lose (2,750) from holding iShares Core SP or give up 1.1% of portfolio value over 90 days.

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

iShares Core SP  vs.  Vanguard Specialized Funds

iShares Core SP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Core showed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Specialized

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Core and Vanguard Specialized

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

The idea behind iShares Core SP and Vanguard Specialized 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.