Correlation Between IShares Basic and Vanguard Industrials

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

Diversification Opportunities for IShares Basic and Vanguard Industrials

0.23

Correlation Coefficient

IShares Basic  Vanguard Industrials

Modest diversification

The 3 months correlation between IShares and Vanguard is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials 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 Basic 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 Basic Materials 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 Basic i.e., IShares Basic and Vanguard Industrials go up and down completely randomly.

Pair Corralation between IShares Basic and Vanguard Industrials

Considering the 90-day investment horizon IShares Basic is expected to generate 13.33 times less return on investment than Vanguard Industrials. But when comparing it to its historical volatility, iShares Basic Materials is 1.06 times less risky than Vanguard Industrials. It trades about 0.01 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  24,664  in Vanguard Industrials Index on September 12, 2024 and sell it today you would earn a total of  2,353  from holding Vanguard Industrials Index or generate 9.54% return on investment over 90 days.

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

iShares Basic Materials  vs.  Vanguard Industrials Index

iShares Basic Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Industrials

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal forward indicators, Vanguard Industrials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Basic and Vanguard Industrials

The main advantage of trading using opposite IShares Basic and Vanguard Industrials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Basic 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 Basic Materials 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.