Correlation Between Vanguard Small and IShares Morningstar

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

Diversification Opportunities for Vanguard Small and IShares Morningstar

0.96

Correlation Coefficient

Vanguard Small  IShares Morningstar

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares Morningstar go up and down completely randomly.

Pair Corralation between Vanguard Small and IShares Morningstar

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the IShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Small Cap Index is 1.1 times less risky than IShares Morningstar. The etf trades about -0.1 of its potential returns per unit of risk. The iShares Morningstar Small Cap is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  4,950  in iShares Morningstar Small Cap on December 29, 2024 and sell it today you would lose (337.00) from holding iShares Morningstar Small Cap or give up 6.81% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  iShares Morningstar Small Cap

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with Vanguard Small and IShares Morningstar

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

The idea behind Vanguard Small Cap Index and iShares Morningstar Small Cap 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.