Correlation Between IShares Core and Vanguard Index

Can any of the company-specific risk be diversified away by investing in both IShares Core 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 Core 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 Core SP and Vanguard Index Funds, you can compare the effects of market volatilities on IShares Core 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 Core with a short position of Vanguard Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Vanguard Index.

Diversification Opportunities for IShares Core and Vanguard Index

0.9

Correlation Coefficient

IShares Core  Vanguard Index

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP 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 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 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 Core i.e., IShares Core and Vanguard Index go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Index

Assuming the 90 days trading horizon iShares Core SP is expected to under-perform the Vanguard Index. In addition to that, IShares Core is 1.68 times more volatile than Vanguard Index Funds. It trades about -0.08 of its total potential returns per unit of risk. Vanguard Index Funds is currently generating about -0.08 per unit of volatility. If you would invest  593,000  in Vanguard Index Funds on December 23, 2024 and sell it today you would lose (29,300) from holding Vanguard Index Funds or give up 4.94% of portfolio value over 90 days.

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

iShares Core SP  vs.  Vanguard Index Funds

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard Index Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Index Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Vanguard Index 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 Index

The main advantage of trading using opposite IShares Core and Vanguard Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SP 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.