Correlation Between Vanguard Value and IShares Russell

Can any of the company-specific risk be diversified away by investing in both Vanguard Value and IShares Russell 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 Russell 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 Russell 2000, you can compare the effects of market volatilities on Vanguard Value and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and IShares Russell.

Diversification Opportunities for Vanguard Value and IShares Russell

0.82

Correlation Coefficient

Vanguard Value  IShares Russell

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Index and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of Vanguard Value i.e., Vanguard Value and IShares Russell go up and down completely randomly.

Pair Corralation between Vanguard Value and IShares Russell

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 0.53 times more return on investment than IShares Russell. However, Vanguard Value Index is 1.88 times less risky than IShares Russell. It trades about 0.07 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.03 per unit of risk. If you would invest  13,674  in Vanguard Value Index on October 5, 2024 and sell it today you would earn a total of  3,232  from holding Vanguard Value Index or generate 23.64% return on investment over 90 days.

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

Vanguard Value Index  vs.  iShares Russell 2000

Vanguard Value Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Value Index has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Russell 2000

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2000 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Value and IShares Russell

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

The idea behind Vanguard Value Index and iShares Russell 2000 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.