Correlation Between IShares National and VCRM

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

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

Diversification Opportunities for IShares National and VCRM

0.89

Correlation Coefficient

IShares National  VCRM

Very poor diversification

The 3 months correlation between IShares and VCRM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares National Muni and VCRM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VCRM and IShares National 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 National Muni are associated (or correlated) with VCRM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VCRM has no effect on the direction of IShares National i.e., IShares National and VCRM go up and down completely randomly.

Pair Corralation between IShares National and VCRM

Considering the 90-day investment horizon IShares National is expected to generate 2.2 times less return on investment than VCRM. But when comparing it to its historical volatility, iShares National Muni is 1.0 times less risky than VCRM. It trades about 0.02 of its potential returns per unit of risk. VCRM is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,400  in VCRM on December 20, 2024 and sell it today you would earn a total of  48.00  from holding VCRM or generate 0.65% return on investment over 90 days.

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

iShares National Muni  vs.  VCRM

iShares National Muni

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares National Muni are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

VCRM

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VCRM are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, VCRM is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares National and VCRM

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

The idea behind iShares National Muni and VCRM 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.