Correlation Between Vanguard Total and IShares Morningstar

Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Total 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 Total Stock and iShares Morningstar Small Cap, you can compare the effects of market volatilities on Vanguard Total 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 Total with a short position of IShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and IShares Morningstar.

Diversification Opportunities for Vanguard Total and IShares Morningstar

0.96

Correlation Coefficient

Vanguard Total  IShares Morningstar

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock 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 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 Stock 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 Total i.e., Vanguard Total and IShares Morningstar go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares Morningstar

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 0.79 times more return on investment than IShares Morningstar. However, Vanguard Total Stock is 1.26 times less risky than IShares Morningstar. It trades about -0.06 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about -0.08 per unit of risk. If you would invest  28,980  in Vanguard Total Stock on December 29, 2024 and sell it today you would lose (1,081) from holding Vanguard Total Stock or give up 3.73% of portfolio value over 90 days.

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

Vanguard Total Stock  vs.  iShares Morningstar Small Cap

Vanguard Total Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Total Stock has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

iShares Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with Vanguard Total and IShares Morningstar

The main advantage of trading using opposite Vanguard Total and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Total Stock 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 Global Correlations module to find global opportunities by holding instruments from different markets.