Correlation Between Vanguard Financials and IShares Global

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

Diversification Opportunities for Vanguard Financials and IShares Global

0.62

Correlation Coefficient

Vanguard Financials  IShares Global

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and iShares Global Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Financials 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Financials has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and IShares Global go up and down completely randomly.

Pair Corralation between Vanguard Financials and IShares Global

Considering the 90-day investment horizon Vanguard Financials is expected to generate 8.39 times less return on investment than IShares Global. In addition to that, Vanguard Financials is 1.18 times more volatile than iShares Global Financials. It trades about 0.01 of its total potential returns per unit of risk. iShares Global Financials is currently generating about 0.11 per unit of volatility. If you would invest  9,616  in iShares Global Financials on December 30, 2024 and sell it today you would earn a total of  638.00  from holding iShares Global Financials or generate 6.63% return on investment over 90 days.

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

Vanguard Financials Index  vs.  iShares Global Financials

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 Global Financials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Financials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard Financials and IShares Global

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

The idea behind Vanguard Financials Index and iShares Global Financials 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.