Correlation Between Vanguard FTSE and IShares Core

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

Diversification Opportunities for Vanguard FTSE and IShares Core

-0.42

Correlation Coefficient

Vanguard FTSE  IShares Core

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and IShares Core go up and down completely randomly.

Pair Corralation between Vanguard FTSE and IShares Core

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to under-perform the IShares Core. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard FTSE Emerging is 1.54 times less risky than IShares Core. The etf trades about -0.12 of its potential returns per unit of risk. The iShares Core SP is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11,629  in iShares Core SP on October 6, 2024 and sell it today you would lose (6.00) from holding iShares Core SP or give up 0.05% of portfolio value over 90 days.

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

Vanguard FTSE Emerging  vs.  iShares Core SP

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.

iShares Core SP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, IShares Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard FTSE and IShares Core

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

The idea behind Vanguard FTSE Emerging and iShares Core SP 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.