Correlation Between Vanguard Total and IShares Canadian

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

By analyzing existing cross correlation between Vanguard Total Market and iShares Canadian Short, you can compare the effects of market volatilities on Vanguard Total and IShares Canadian 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 Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and IShares Canadian.

Diversification Opportunities for Vanguard Total and IShares Canadian

0.3

Correlation Coefficient

Vanguard Total  IShares Canadian

Weak diversification

The 3 months correlation between Vanguard and IShares is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Market and iShares Canadian Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Short 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 Market are associated (or correlated) with IShares Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian Short has no effect on the direction of Vanguard Total i.e., Vanguard Total and IShares Canadian go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares Canadian

Assuming the 90 days trading horizon Vanguard Total Market is expected to generate 4.81 times more return on investment than IShares Canadian. However, Vanguard Total is 4.81 times more volatile than iShares Canadian Short. It trades about 0.22 of its potential returns per unit of risk. iShares Canadian Short is currently generating about 0.15 per unit of risk. If you would invest  9,644  in Vanguard Total Market on September 3, 2024 and sell it today you would earn a total of  1,003  from holding Vanguard Total Market or generate 10.4% return on investment over 90 days.

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

Vanguard Total Market  vs.  iShares Canadian Short

Vanguard Total Market

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Canadian Short

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Short are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian 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 Total and IShares Canadian

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

The idea behind Vanguard Total Market and iShares Canadian Short 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.