Correlation Between Vanguard Consumer and IShares Basic

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

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

Diversification Opportunities for Vanguard Consumer and IShares Basic

0.55

Correlation Coefficient

Vanguard Consumer  IShares Basic

Very weak diversification

The 3 months correlation between Vanguard and IShares is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Consumer Staples and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials and Vanguard Consumer 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 Consumer Staples are associated (or correlated) with IShares Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of Vanguard Consumer i.e., Vanguard Consumer and IShares Basic go up and down completely randomly.

Pair Corralation between Vanguard Consumer and IShares Basic

Considering the 90-day investment horizon Vanguard Consumer Staples is expected to under-perform the IShares Basic. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Consumer Staples is 1.09 times less risky than IShares Basic. The etf trades about -0.02 of its potential returns per unit of risk. The iShares Basic Materials is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  13,129  in iShares Basic Materials on December 26, 2024 and sell it today you would earn a total of  541.00  from holding iShares Basic Materials or generate 4.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Vanguard Consumer Staples  vs.  iShares Basic Materials

Vanguard Consumer Staples

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Consumer Staples has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Vanguard Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Basic Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Consumer and IShares Basic

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

The idea behind Vanguard Consumer Staples and iShares Basic Materials 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.