Correlation Between Vanguard FTSE and Vanguard Russell

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

By analyzing existing cross correlation between Vanguard FTSE Canadian and Vanguard Russell 2000, you can compare the effects of market volatilities on Vanguard FTSE and Vanguard Russell 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 FTSE with a short position of Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and Vanguard Russell.

Diversification Opportunities for Vanguard FTSE and Vanguard Russell

0.71

Correlation Coefficient

Vanguard FTSE  Vanguard Russell

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canadian and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 and Vanguard FTSE 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 FTSE Canadian are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Vanguard Russell go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Vanguard Russell

Assuming the 90 days horizon Vanguard FTSE Canadian is expected to generate 0.87 times more return on investment than Vanguard Russell. However, Vanguard FTSE Canadian is 1.15 times less risky than Vanguard Russell. It trades about 0.17 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about 0.11 per unit of risk. If you would invest  3,213  in Vanguard FTSE Canadian on September 17, 2024 and sell it today you would earn a total of  400.00  from holding Vanguard FTSE Canadian or generate 12.45% return on investment over 90 days.

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

Vanguard FTSE Canadian  vs.  Vanguard Russell 2000

Vanguard FTSE Canadian

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canadian are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Russell 2000

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Vanguard Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and Vanguard Russell

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

The idea behind Vanguard FTSE Canadian and Vanguard Russell 2000 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.