Correlation Between IShares Morningstar and Vanguard

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

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

Diversification Opportunities for IShares Morningstar and Vanguard

0.97

Correlation Coefficient

IShares Morningstar  Vanguard

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Small Cap and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small and IShares Morningstar 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 Morningstar Small Cap are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and Vanguard go up and down completely randomly.

Pair Corralation between IShares Morningstar and Vanguard

Considering the 90-day investment horizon iShares Morningstar Small Cap is expected to generate 0.85 times more return on investment than Vanguard. However, iShares Morningstar Small Cap is 1.17 times less risky than Vanguard. It trades about 0.21 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.15 per unit of risk. If you would invest  4,679  in iShares Morningstar Small Cap on September 2, 2024 and sell it today you would earn a total of  724.00  from holding iShares Morningstar Small Cap or generate 15.47% return on investment over 90 days.

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

iShares Morningstar Small Cap  vs.  Vanguard SP Small Cap

iShares Morningstar

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile forward-looking signals, IShares Morningstar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard SP Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Morningstar and Vanguard

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

The idea behind iShares Morningstar Small Cap and Vanguard SP Small Cap 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.