Correlation Between Vanguard FTSE and IShares Trust

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

By analyzing existing cross correlation between Vanguard FTSE Developed and iShares Trust, you can compare the effects of market volatilities on Vanguard FTSE and IShares Trust 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 IShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and IShares Trust.

Diversification Opportunities for Vanguard FTSE and IShares Trust

0.94

Correlation Coefficient

Vanguard FTSE  IShares Trust

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Developed are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and IShares Trust go up and down completely randomly.

Pair Corralation between Vanguard FTSE and IShares Trust

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to generate 21.22 times more return on investment than IShares Trust. However, Vanguard FTSE is 21.22 times more volatile than iShares Trust. It trades about 0.14 of its potential returns per unit of risk. iShares Trust is currently generating about 0.55 per unit of risk. If you would invest  4,759  in Vanguard FTSE Developed on December 30, 2024 and sell it today you would earn a total of  365.00  from holding Vanguard FTSE Developed or generate 7.67% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  iShares Trust

Vanguard FTSE Developed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Trust

Risk-Adjusted Performance

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 43 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, IShares Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and IShares Trust

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

The idea behind Vanguard FTSE Developed and iShares Trust 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.