Correlation Between Vanguard Value and IShares MSCI

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

Diversification Opportunities for Vanguard Value and IShares MSCI

0.96

Correlation Coefficient

Vanguard Value  IShares MSCI

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 Value Index and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Vanguard Value i.e., Vanguard Value and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Value and IShares MSCI

Considering the 90-day investment horizon Vanguard Value Index is expected to generate 0.87 times more return on investment than IShares MSCI. However, Vanguard Value Index is 1.16 times less risky than IShares MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.03 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard Value Index  vs.  iShares MSCI USA

Vanguard Value Index

Risk-Adjusted Performance

Insignificant

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 MSCI USA

Risk-Adjusted Performance

Weak

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

Pair Trading with Vanguard Value and IShares MSCI

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

The idea behind Vanguard Value Index and iShares MSCI USA 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 Anywhere module to track or share privately all of your investments from the convenience of any device.