Correlation Between Vanguard and Invesco MSCI

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

By analyzing existing cross correlation between Vanguard SP 500 and Invesco MSCI USA, you can compare the effects of market volatilities on Vanguard and Invesco 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 with a short position of Invesco MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Invesco MSCI.

Diversification Opportunities for Vanguard and Invesco MSCI

0.91

Correlation Coefficient

Vanguard  Invesco MSCI

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Invesco MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI USA and Vanguard 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 SP 500 are associated (or correlated) with Invesco MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco MSCI USA has no effect on the direction of Vanguard i.e., Vanguard and Invesco MSCI go up and down completely randomly.

Pair Corralation between Vanguard and Invesco MSCI

Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 1.19 times more return on investment than Invesco MSCI. However, Vanguard is 1.19 times more volatile than Invesco MSCI USA. It trades about 0.11 of its potential returns per unit of risk. Invesco MSCI USA is currently generating about 0.11 per unit of risk. If you would invest  8,099  in Vanguard SP 500 on October 2, 2024 and sell it today you would earn a total of  2,051  from holding Vanguard SP 500 or generate 25.32% return on investment over 90 days.

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

Vanguard SP 500  vs.  Invesco MSCI USA

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco MSCI USA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco MSCI USA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Invesco MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and Invesco MSCI

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

The idea behind Vanguard SP 500 and Invesco 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.