Correlation Between IShares Core and Vanguard Funds

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

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

Diversification Opportunities for IShares Core and Vanguard Funds

0.86

Correlation Coefficient

IShares Core  Vanguard Funds

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Vanguard Funds PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds PLC and IShares Core 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 Core SP are associated (or correlated) with Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds PLC has no effect on the direction of IShares Core i.e., IShares Core and Vanguard Funds go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard Funds

Assuming the 90 days trading horizon iShares Core SP is expected to generate 2.19 times more return on investment than Vanguard Funds. However, IShares Core is 2.19 times more volatile than Vanguard Funds PLC. It trades about 0.28 of its potential returns per unit of risk. Vanguard Funds PLC is currently generating about 0.2 per unit of risk. If you would invest  52,208  in iShares Core SP on September 5, 2024 and sell it today you would earn a total of  8,772  from holding iShares Core SP or generate 16.8% return on investment over 90 days.

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

iShares Core SP  vs.  Vanguard Funds PLC

iShares Core SP

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Core reported solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Funds PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Funds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and Vanguard Funds

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

The idea behind iShares Core SP and Vanguard Funds PLC 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.