Correlation Between IShares Trust and Vanguard Tax

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

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

Diversification Opportunities for IShares Trust and Vanguard Tax

-0.26

Correlation Coefficient

IShares Trust  Vanguard Tax

Very good diversification

The 3 months correlation between IShares and Vanguard is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Vanguard Tax Managed Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Tax Managed 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 Vanguard Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Tax Managed has no effect on the direction of IShares Trust i.e., IShares Trust and Vanguard Tax go up and down completely randomly.

Pair Corralation between IShares Trust and Vanguard Tax

Assuming the 90 days trading horizon iShares Trust is expected to under-perform the Vanguard Tax. In addition to that, IShares Trust is 1.16 times more volatile than Vanguard Tax Managed Funds. It trades about -0.11 of its total potential returns per unit of risk. Vanguard Tax Managed Funds is currently generating about 0.13 per unit of volatility. If you would invest  98,195  in Vanguard Tax Managed Funds on December 30, 2024 and sell it today you would earn a total of  6,527  from holding Vanguard Tax Managed Funds or generate 6.65% 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.  Vanguard Tax Managed Funds

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 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 Tax Managed

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Tax Managed Funds are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard Tax may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Trust and Vanguard Tax

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

The idea behind iShares Trust and Vanguard Tax Managed 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.