Correlation Between Vanguard Financials and IShares MSCI

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

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

Diversification Opportunities for Vanguard Financials and IShares MSCI

-0.11

Correlation Coefficient

Vanguard Financials  IShares MSCI

Good diversification

The 3 months correlation between Vanguard and IShares is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe and Vanguard Financials 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 Financials Index are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Europe has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Financials and IShares MSCI

Considering the 90-day investment horizon Vanguard Financials is expected to generate 27.19 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Vanguard Financials Index is 1.06 times less risky than IShares MSCI. It trades about 0.01 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,332  in iShares MSCI Europe on December 30, 2024 and sell it today you would earn a total of  553.00  from holding iShares MSCI Europe or generate 23.71% return on investment over 90 days.

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

Vanguard Financials Index  vs.  iShares MSCI Europe

Vanguard Financials Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Financials Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Vanguard Financials is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

iShares MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, IShares MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Financials and IShares MSCI

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

The idea behind Vanguard Financials Index and iShares MSCI Europe 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.