Correlation Between IShares China and Vanguard FTSE

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

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

Diversification Opportunities for IShares China and Vanguard FTSE

-0.33

Correlation Coefficient

IShares China  Vanguard FTSE

Very good diversification

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

Pair Corralation between IShares China and Vanguard FTSE

Assuming the 90 days trading horizon iShares China LargeCap is expected to generate 2.67 times more return on investment than Vanguard FTSE. However, IShares China is 2.67 times more volatile than Vanguard FTSE Europe. It trades about 0.07 of its potential returns per unit of risk. Vanguard FTSE Europe is currently generating about -0.03 per unit of risk. If you would invest  4,047  in iShares China LargeCap on September 4, 2024 and sell it today you would earn a total of  650.00  from holding iShares China LargeCap or generate 16.06% return on investment over 90 days.

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

iShares China LargeCap  vs.  Vanguard FTSE Europe

iShares China LargeCap

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China LargeCap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares China unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vanguard FTSE Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares China and Vanguard FTSE

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

The idea behind iShares China LargeCap and Vanguard FTSE Europe 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.