Correlation Between IShares MBS and Vanguard Emerging

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

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

Diversification Opportunities for IShares MBS and Vanguard Emerging

0.88

Correlation Coefficient

IShares MBS  Vanguard Emerging

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares MBS ETF and Vanguard Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Emerging Markets and IShares MBS 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 MBS ETF are associated (or correlated) with Vanguard Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Emerging Markets has no effect on the direction of IShares MBS i.e., IShares MBS and Vanguard Emerging go up and down completely randomly.

Pair Corralation between IShares MBS and Vanguard Emerging

Considering the 90-day investment horizon iShares MBS ETF is expected to under-perform the Vanguard Emerging. But the etf apears to be less risky and, when comparing its historical volatility, iShares MBS ETF is 1.0 times less risky than Vanguard Emerging. The etf trades about -0.15 of its potential returns per unit of risk. The Vanguard Emerging Markets is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,538  in Vanguard Emerging Markets on September 16, 2024 and sell it today you would lose (92.00) from holding Vanguard Emerging Markets or give up 1.41% of portfolio value over 90 days.

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

iShares MBS ETF  vs.  Vanguard Emerging Markets

iShares MBS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MBS ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, IShares MBS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Vanguard Emerging 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 MBS and Vanguard Emerging

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

The idea behind iShares MBS ETF and Vanguard Emerging Markets 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.