Correlation Between IShares Industrials and Vanguard Industrials

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

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

Diversification Opportunities for IShares Industrials and Vanguard Industrials

1.0

Correlation Coefficient

IShares Industrials  Vanguard Industrials

No risk reduction

The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials and IShares Industrials 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 Industrials ETF are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of IShares Industrials i.e., IShares Industrials and Vanguard Industrials go up and down completely randomly.

Pair Corralation between IShares Industrials and Vanguard Industrials

Considering the 90-day investment horizon IShares Industrials is expected to generate 1.06 times less return on investment than Vanguard Industrials. But when comparing it to its historical volatility, iShares Industrials ETF is 1.07 times less risky than Vanguard Industrials. It trades about 0.23 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  24,554  in Vanguard Industrials Index on September 1, 2024 and sell it today you would earn a total of  3,416  from holding Vanguard Industrials Index or generate 13.91% return on investment over 90 days.

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

iShares Industrials ETF  vs.  Vanguard Industrials Index

iShares Industrials ETF

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, IShares Industrials may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Industrials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Vanguard Industrials unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Industrials and Vanguard Industrials

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

The idea behind iShares Industrials ETF and Vanguard Industrials Index 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.