Correlation Between Vanguard MSCI and Vanguard FTSE

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

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

Diversification Opportunities for Vanguard MSCI and Vanguard FTSE

0.67

Correlation Coefficient

Vanguard MSCI  Vanguard FTSE

Poor diversification

The 3 months correlation between Vanguard and Vanguard is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard MSCI International and Vanguard FTSE Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Europe and Vanguard MSCI 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 MSCI International are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Europe has no effect on the direction of Vanguard MSCI i.e., Vanguard MSCI and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Vanguard MSCI and Vanguard FTSE

Assuming the 90 days trading horizon Vanguard MSCI International is expected to under-perform the Vanguard FTSE. In addition to that, Vanguard MSCI is 1.21 times more volatile than Vanguard FTSE Europe. It trades about -0.01 of its total potential returns per unit of risk. Vanguard FTSE Europe is currently generating about 0.27 per unit of volatility. If you would invest  7,113  in Vanguard FTSE Europe on December 2, 2024 and sell it today you would earn a total of  837.00  from holding Vanguard FTSE Europe or generate 11.77% return on investment over 90 days.

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

Vanguard MSCI International  vs.  Vanguard FTSE Europe

Vanguard MSCI Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard MSCI International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard FTSE Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Europe are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanguard MSCI and Vanguard FTSE

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

The idea behind Vanguard MSCI International and Vanguard FTSE 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.