Correlation Between Vanguard Total and IShares BBB

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

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

Diversification Opportunities for Vanguard Total and IShares BBB

1.0

Correlation Coefficient

Vanguard Total  IShares BBB

No risk reduction

The 3 months correlation between Vanguard and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Corporate and iShares BBB Rated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BBB Rated and Vanguard Total 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 Total Corporate are associated (or correlated) with IShares BBB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BBB Rated has no effect on the direction of Vanguard Total i.e., Vanguard Total and IShares BBB go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares BBB

Considering the 90-day investment horizon Vanguard Total Corporate is expected to generate 1.11 times more return on investment than IShares BBB. However, Vanguard Total is 1.11 times more volatile than iShares BBB Rated. It trades about 0.02 of its potential returns per unit of risk. iShares BBB Rated is currently generating about 0.01 per unit of risk. If you would invest  7,706  in Vanguard Total Corporate on December 2, 2024 and sell it today you would earn a total of  33.00  from holding Vanguard Total Corporate or generate 0.43% return on investment over 90 days.

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

Vanguard Total Corporate  vs.  iShares BBB Rated

Vanguard Total Corporate

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Corporate are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Vanguard Total is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares BBB Rated

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares BBB Rated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares BBB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Total and IShares BBB

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

The idea behind Vanguard Total Corporate and iShares BBB Rated 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.