Correlation Between Vanguard Mega and IShares MSCI

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

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

Diversification Opportunities for Vanguard Mega and IShares MSCI

0.76

Correlation Coefficient

Vanguard Mega  IShares MSCI

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Mega Cap and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and Vanguard Mega 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 Vanguard Mega Cap are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Vanguard Mega i.e., Vanguard Mega and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Mega and IShares MSCI

Considering the 90-day investment horizon Vanguard Mega Cap is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Mega Cap is 1.06 times less risky than IShares MSCI. The etf trades about -0.09 of its potential returns per unit of risk. The iShares MSCI USA is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  20,735  in iShares MSCI USA on December 29, 2024 and sell it today you would lose (649.00) from holding iShares MSCI USA or give up 3.13% of portfolio value over 90 days.

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

Vanguard Mega Cap  vs.  iShares MSCI USA

Vanguard Mega Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mega Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Mega and IShares MSCI

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

The idea behind Vanguard Mega Cap and iShares MSCI USA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.