Correlation Between Vanguard FTSE and FlexShares Developed

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

Diversification Opportunities for Vanguard FTSE and FlexShares Developed

0.97

Correlation Coefficient

Vanguard FTSE  FlexShares Developed

Almost no diversification

The 3 months correlation between Vanguard and FlexShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and FlexShares Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Developed 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 FlexShares Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Developed has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and FlexShares Developed go up and down completely randomly.

Pair Corralation between Vanguard FTSE and FlexShares Developed

Considering the 90-day investment horizon Vanguard FTSE is expected to generate 1.2 times less return on investment than FlexShares Developed. In addition to that, Vanguard FTSE is 1.55 times more volatile than FlexShares Developed Markets. It trades about 0.14 of its total potential returns per unit of risk. FlexShares Developed Markets is currently generating about 0.26 per unit of volatility. If you would invest  2,634  in FlexShares Developed Markets on December 30, 2024 and sell it today you would earn a total of  249.00  from holding FlexShares Developed Markets or generate 9.45% 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.  FlexShares Developed Markets

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.

FlexShares Developed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Developed Markets are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, FlexShares Developed may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard FTSE and FlexShares Developed

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

The idea behind Vanguard FTSE Developed and FlexShares Developed Markets 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.