Correlation Between MSCI ACWI and Vanguard Explorer

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

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

Diversification Opportunities for MSCI ACWI and Vanguard Explorer

0.39

Correlation Coefficient

MSCI ACWI  Vanguard Explorer

Weak diversification

The 3 months correlation between MSCI and Vanguard is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding MSCI ACWI exAUCONSUMER and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer and MSCI ACWI 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 MSCI ACWI exAUCONSUMER are associated (or correlated) with Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of MSCI ACWI i.e., MSCI ACWI and Vanguard Explorer go up and down completely randomly.

Pair Corralation between MSCI ACWI and Vanguard Explorer

Assuming the 90 days horizon MSCI ACWI exAUCONSUMER is expected to generate 0.17 times more return on investment than Vanguard Explorer. However, MSCI ACWI exAUCONSUMER is 6.0 times less risky than Vanguard Explorer. It trades about -0.03 of its potential returns per unit of risk. Vanguard Explorer Fund is currently generating about -0.27 per unit of risk. If you would invest  2,505  in MSCI ACWI exAUCONSUMER on October 9, 2024 and sell it today you would lose (4.00) from holding MSCI ACWI exAUCONSUMER or give up 0.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

MSCI ACWI exAUCONSUMER  vs.  Vanguard Explorer Fund

MSCI ACWI exAUCONSUMER

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI ACWI exAUCONSUMER are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, MSCI ACWI is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Explorer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MSCI ACWI and Vanguard Explorer

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

The idea behind MSCI ACWI exAUCONSUMER and Vanguard Explorer Fund 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 CEOs Directory module to screen CEOs from public companies around the world.