Correlation Between Vanguard Small and IShares MSCI

Can any of the company-specific risk be diversified away by investing in both Vanguard Small 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 Small 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 Small Cap Index and iShares MSCI Mexico, you can compare the effects of market volatilities on Vanguard Small 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 Small with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and IShares MSCI.

Diversification Opportunities for Vanguard Small and IShares MSCI

-0.46

Correlation Coefficient

Vanguard Small  IShares MSCI

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and iShares MSCI Mexico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Mexico and Vanguard Small 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 Small Cap Index 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 Mexico has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Small and IShares MSCI

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.79 times more return on investment than IShares MSCI. However, Vanguard Small Cap Index is 1.26 times less risky than IShares MSCI. It trades about 0.17 of its potential returns per unit of risk. iShares MSCI Mexico is currently generating about -0.09 per unit of risk. If you would invest  23,273  in Vanguard Small Cap Index on August 30, 2024 and sell it today you would earn a total of  2,699  from holding Vanguard Small Cap Index or generate 11.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Vanguard Small Cap Index  vs.  iShares MSCI Mexico

Vanguard Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares MSCI Mexico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Mexico has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Vanguard Small and IShares MSCI

The main advantage of trading using opposite Vanguard Small and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small 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 Small Cap Index and iShares MSCI Mexico 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.