Correlation Between Vanguard Index and IShares Regional

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

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

Diversification Opportunities for Vanguard Index and IShares Regional

0.88

Correlation Coefficient

Vanguard Index  IShares Regional

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Funds and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks and Vanguard Index 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 Index Funds are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of Vanguard Index i.e., Vanguard Index and IShares Regional go up and down completely randomly.

Pair Corralation between Vanguard Index and IShares Regional

Assuming the 90 days trading horizon Vanguard Index is expected to generate 2.38 times less return on investment than IShares Regional. But when comparing it to its historical volatility, Vanguard Index Funds is 2.2 times less risky than IShares Regional. It trades about 0.15 of its potential returns per unit of risk. iShares Regional Banks is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  69,335  in iShares Regional Banks on September 30, 2024 and sell it today you would earn a total of  38,757  from holding iShares Regional Banks or generate 55.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.2%
Values	Daily Returns

Vanguard Index Funds  vs.  iShares Regional Banks

Vanguard Index Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Funds are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Vanguard Index may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Regional Banks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Regional showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Index and IShares Regional

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

The idea behind Vanguard Index Funds and iShares Regional Banks 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .