Correlation Between IShares Morningstar and Vanguard Russell

Can any of the company-specific risk be diversified away by investing in both IShares Morningstar and Vanguard Russell 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 Russell 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 Russell 2000, you can compare the effects of market volatilities on IShares Morningstar and Vanguard Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Morningstar and Vanguard Russell.

Diversification Opportunities for IShares Morningstar and Vanguard Russell

1.0

Correlation Coefficient

IShares Morningstar  Vanguard Russell

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 Morningstar Small Cap and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and Vanguard Russell go up and down completely randomly.

Pair Corralation between IShares Morningstar and Vanguard Russell

Considering the 90-day investment horizon IShares Morningstar is expected to generate 1.38 times less return on investment than Vanguard Russell. But when comparing it to its historical volatility, iShares Morningstar Small Cap is 1.16 times less risky than Vanguard Russell. It trades about 0.05 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  39,062  in Vanguard Russell 2000 on October 8, 2024 and sell it today you would earn a total of  1,945  from holding Vanguard Russell 2000 or generate 4.98% 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 Russell 2000

iShares Morningstar

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Russell 2000

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Vanguard Russell is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Morningstar and Vanguard Russell

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

The idea behind iShares Morningstar Small Cap and Vanguard Russell 2000 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.