Correlation Between Vanguard FTSE and FlexShares STOXX

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

By analyzing existing cross correlation between Vanguard FTSE Emerging and FlexShares STOXX Global, you can compare the effects of market volatilities on Vanguard FTSE and FlexShares STOXX 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 FTSE with a short position of FlexShares STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and FlexShares STOXX.

Diversification Opportunities for Vanguard FTSE and FlexShares STOXX

0.24

Correlation Coefficient

Vanguard FTSE  FlexShares STOXX

Modest diversification

The 3 months correlation between Vanguard and FlexShares is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global and Vanguard FTSE 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 FTSE Emerging are associated (or correlated) with FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Vanguard FTSE and FlexShares STOXX

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to under-perform the FlexShares STOXX. In addition to that, Vanguard FTSE is 1.43 times more volatile than FlexShares STOXX Global. It trades about -0.14 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about -0.04 per unit of volatility. If you would invest  17,075  in FlexShares STOXX Global on October 4, 2024 and sell it today you would lose (287.00) from holding FlexShares STOXX Global or give up 1.68% of portfolio value over 90 days.

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

Vanguard FTSE Emerging  vs.  FlexShares STOXX Global

Vanguard FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

FlexShares STOXX Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard FTSE and FlexShares STOXX

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

The idea behind Vanguard FTSE Emerging and FlexShares STOXX Global 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.