Correlation Between Vanguard and IShares Morningstar

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

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

Diversification Opportunities for Vanguard and IShares Morningstar

0.95

Correlation Coefficient

Vanguard  IShares Morningstar

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar and Vanguard 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 SP Small Cap are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Vanguard i.e., Vanguard and IShares Morningstar go up and down completely randomly.

Pair Corralation between Vanguard and IShares Morningstar

Given the investment horizon of 90 days Vanguard SP Small Cap is expected to under-perform the IShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP Small Cap is 1.05 times less risky than IShares Morningstar. The etf trades about -0.26 of its potential returns per unit of risk. The iShares Morningstar Small Cap is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  5,279  in iShares Morningstar Small Cap on October 8, 2024 and sell it today you would lose (237.00) from holding iShares Morningstar Small Cap or give up 4.49% of portfolio value over 90 days.

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

Vanguard SP Small Cap  vs.  iShares Morningstar Small Cap

Vanguard SP Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Morningstar

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, IShares Morningstar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard and IShares Morningstar

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

The idea behind Vanguard SP Small Cap and iShares Morningstar Small Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.