Correlation Between Vanguard Small and KraneShares MSCI

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

Diversification Opportunities for Vanguard Small and KraneShares MSCI

-0.48

Correlation Coefficient

Vanguard Small  KraneShares MSCI

Very good diversification

The 3 months correlation between Vanguard and KraneShares is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and KraneShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI China 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 KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI China has no effect on the direction of Vanguard Small i.e., Vanguard Small and KraneShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Small and KraneShares MSCI

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.55 times more return on investment than KraneShares MSCI. However, Vanguard Small Cap Index is 1.83 times less risky than KraneShares MSCI. It trades about 0.05 of its potential returns per unit of risk. KraneShares MSCI China is currently generating about -0.02 per unit of risk. If you would invest  19,027  in Vanguard Small Cap Index on October 4, 2024 and sell it today you would earn a total of  4,975  from holding Vanguard Small Cap Index or generate 26.15% 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.  KraneShares MSCI China

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KraneShares MSCI China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KraneShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with Vanguard Small and KraneShares MSCI

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

The idea behind Vanguard Small Cap Index and KraneShares MSCI China 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..