Correlation Between IShares Trust and VanEck Vectors

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

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

Diversification Opportunities for IShares Trust and VanEck Vectors

-0.33

Correlation Coefficient

IShares Trust  VanEck Vectors

Very good diversification

The 3 months correlation between IShares and VanEck is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and VanEck Vectors ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Vectors ETF and IShares Trust 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 Trust are associated (or correlated) with VanEck Vectors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Vectors ETF has no effect on the direction of IShares Trust i.e., IShares Trust and VanEck Vectors go up and down completely randomly.

Pair Corralation between IShares Trust and VanEck Vectors

Assuming the 90 days trading horizon iShares Trust is expected to under-perform the VanEck Vectors. But the etf apears to be less risky and, when comparing its historical volatility, iShares Trust is 1.9 times less risky than VanEck Vectors. The etf trades about -0.07 of its potential returns per unit of risk. The VanEck Vectors ETF is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  68,201  in VanEck Vectors ETF on December 23, 2024 and sell it today you would earn a total of  21,799  from holding VanEck Vectors ETF or generate 31.96% return on investment over 90 days.

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

iShares Trust   vs.  VanEck Vectors ETF

iShares Trust

Risk-Adjusted Performance

Very Weak

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

VanEck Vectors ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Vectors ETF are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, VanEck Vectors showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Trust and VanEck Vectors

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

The idea behind iShares Trust and VanEck Vectors ETF 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.

Check out your portfolio center.

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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.