Correlation Between Vanguard USD and IShares MSCI

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

Diversification Opportunities for Vanguard USD and IShares MSCI

0.66

Correlation Coefficient

Vanguard USD  IShares MSCI

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard USD Treasury 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 USD 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 USD Treasury 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 USD i.e., Vanguard USD and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard USD and IShares MSCI

Assuming the 90 days trading horizon Vanguard USD Treasury is expected to generate 0.56 times more return on investment than IShares MSCI. However, Vanguard USD Treasury is 1.78 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 -0.08 per unit of risk. If you would invest  2,036  in Vanguard USD Treasury on December 30, 2024 and sell it today you would lose (36.00) from holding Vanguard USD Treasury or give up 1.77% of portfolio value over 90 days.

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

Vanguard USD Treasury  vs.  iShares MSCI USA

Vanguard USD Treasury

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard USD Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard USD is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard USD and IShares MSCI

The main advantage of trading using opposite Vanguard USD and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard USD 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 USD Treasury 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.