Correlation Between Vanguard and IShares SP

Can any of the company-specific risk be diversified away by investing in both Vanguard and IShares SP 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 IShares SP 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 iShares SP 500, you can compare the effects of market volatilities on Vanguard and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and IShares SP.

Diversification Opportunities for Vanguard and IShares SP

-0.22

Correlation Coefficient

Vanguard  IShares SP

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of Vanguard i.e., Vanguard and IShares SP go up and down completely randomly.

Pair Corralation between Vanguard and IShares SP

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the IShares SP. In addition to that, Vanguard is 1.45 times more volatile than iShares SP 500. It trades about -0.08 of its total potential returns per unit of risk. iShares SP 500 is currently generating about 0.13 per unit of volatility. If you would invest  1,099  in iShares SP 500 on December 26, 2024 and sell it today you would earn a total of  65.00  from holding iShares SP 500 or generate 5.91% return on investment over 90 days.

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

Vanguard SP 500  vs.  iShares SP 500

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares SP 500

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and IShares SP

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

The idea behind Vanguard SP 500 and iShares SP 500 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.