Correlation Between Vanguard Australian and VanEck MSCI

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

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

Diversification Opportunities for Vanguard Australian and VanEck MSCI

0.85

Correlation Coefficient

Vanguard Australian  VanEck MSCI

Very poor diversification

The 3 months correlation between Vanguard and VanEck is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Australian Shares and VanEck MSCI International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck MSCI International and Vanguard Australian 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 Australian Shares are associated (or correlated) with VanEck MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck MSCI International has no effect on the direction of Vanguard Australian i.e., Vanguard Australian and VanEck MSCI go up and down completely randomly.

Pair Corralation between Vanguard Australian and VanEck MSCI

Assuming the 90 days trading horizon Vanguard Australian is expected to generate 2.08 times less return on investment than VanEck MSCI. But when comparing it to its historical volatility, Vanguard Australian Shares is 1.72 times less risky than VanEck MSCI. It trades about 0.2 of its potential returns per unit of risk. VanEck MSCI International is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,769  in VanEck MSCI International on September 5, 2024 and sell it today you would earn a total of  436.00  from holding VanEck MSCI International or generate 15.75% return on investment over 90 days.

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

Vanguard Australian Shares  vs.  VanEck MSCI International

Vanguard Australian

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Australian Shares are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard Australian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VanEck MSCI International

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck MSCI International are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, VanEck MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Australian and VanEck MSCI

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

The idea behind Vanguard Australian Shares and VanEck MSCI International 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.