Correlation Between Vanguard FTSE and Vanguard MSCI

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

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

Diversification Opportunities for Vanguard FTSE and Vanguard MSCI

-0.31

Correlation Coefficient

Vanguard FTSE  Vanguard MSCI

Very good diversification

The 3 months correlation between Vanguard and Vanguard is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Europe and Vanguard MSCI International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard MSCI Intern 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 Europe are associated (or correlated) with Vanguard MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard MSCI Intern has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Vanguard MSCI go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Vanguard MSCI

Assuming the 90 days trading horizon Vanguard FTSE Europe is expected to generate 1.68 times more return on investment than Vanguard MSCI. However, Vanguard FTSE is 1.68 times more volatile than Vanguard MSCI International. It trades about 0.26 of its potential returns per unit of risk. Vanguard MSCI International is currently generating about 0.14 per unit of risk. If you would invest  7,152  in Vanguard FTSE Europe on September 12, 2024 and sell it today you would earn a total of  291.00  from holding Vanguard FTSE Europe or generate 4.07% return on investment over 90 days.

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

Vanguard FTSE Europe  vs.  Vanguard MSCI International

Vanguard FTSE Europe

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Europe are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard MSCI Intern

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard MSCI International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and Vanguard MSCI

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

The idea behind Vanguard FTSE Europe and Vanguard MSCI International 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 Transaction History module to view history of all your transactions and understand their impact on performance.