Correlation Between Vanguard Specialized and IShares Trust

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

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

Diversification Opportunities for Vanguard Specialized and IShares Trust

0.27

Correlation Coefficient

Vanguard Specialized  IShares Trust

Modest diversification

The 3 months correlation between Vanguard and IShares is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Specialized Funds and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Vanguard Specialized 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 Specialized Funds are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Vanguard Specialized i.e., Vanguard Specialized and IShares Trust go up and down completely randomly.

Pair Corralation between Vanguard Specialized and IShares Trust

Assuming the 90 days trading horizon Vanguard Specialized Funds is expected to under-perform the IShares Trust. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Specialized Funds is 1.41 times less risky than IShares Trust. The etf trades about -0.4 of its potential returns per unit of risk. The iShares Trust is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  366,585  in iShares Trust on September 26, 2024 and sell it today you would lose (23,970) from holding iShares Trust or give up 6.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Vanguard Specialized Funds  vs.  iShares Trust

Vanguard Specialized

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Specialized Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard Specialized is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Specialized and IShares Trust

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

The idea behind Vanguard Specialized Funds and iShares Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.