Correlation Between Vanguard Value and IShares Core

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

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

Diversification Opportunities for Vanguard Value and IShares Core

0.62

Correlation Coefficient

Vanguard Value  IShares Core

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and Vanguard Value 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 Value Index are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Vanguard Value i.e., Vanguard Value and IShares Core go up and down completely randomly.

Pair Corralation between Vanguard Value and IShares Core

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 0.77 times more return on investment than IShares Core. However, Vanguard Value Index is 1.3 times less risky than IShares Core. It trades about 0.04 of its potential returns per unit of risk. iShares Core SP is currently generating about -0.08 per unit of risk. If you would invest  16,796  in Vanguard Value Index on December 29, 2024 and sell it today you would earn a total of  287.00  from holding Vanguard Value Index or generate 1.71% return on investment over 90 days.

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

Vanguard Value Index  vs.  iShares Core SP

Vanguard Value Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard Value and IShares Core

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

The idea behind Vanguard Value Index and iShares Core SP 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..