Correlation Between IShares Russell and Vanguard Extended

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

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

Diversification Opportunities for IShares Russell and Vanguard Extended

0.99

Correlation Coefficient

IShares Russell  Vanguard Extended

No risk reduction

The 3 months correlation between IShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and Vanguard Extended Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Extended Market and IShares Russell 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 Russell Mid Cap are associated (or correlated) with Vanguard Extended. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Extended Market has no effect on the direction of IShares Russell i.e., IShares Russell and Vanguard Extended go up and down completely randomly.

Pair Corralation between IShares Russell and Vanguard Extended

Considering the 90-day investment horizon IShares Russell is expected to generate 1.35 times less return on investment than Vanguard Extended. But when comparing it to its historical volatility, iShares Russell Mid Cap is 1.44 times less risky than Vanguard Extended. It trades about 0.21 of its potential returns per unit of risk. Vanguard Extended Market is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  17,904  in Vanguard Extended Market on August 30, 2024 and sell it today you would earn a total of  2,550  from holding Vanguard Extended Market or generate 14.24% return on investment over 90 days.

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

iShares Russell Mid Cap  vs.  Vanguard Extended Market

iShares Russell Mid

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Extended Market

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Extended reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Russell and Vanguard Extended

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

The idea behind iShares Russell Mid Cap and Vanguard Extended 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.