Correlation Between IShares MSCI and Vanguard Russell

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

By analyzing existing cross correlation between iShares MSCI EAFE and Vanguard Russell 2000, you can compare the effects of market volatilities on IShares MSCI and Vanguard Russell 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 IShares MSCI with a short position of Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard Russell.

Diversification Opportunities for IShares MSCI and Vanguard Russell

-0.62

Correlation Coefficient

IShares MSCI  Vanguard Russell

Excellent diversification

The 3 months correlation between IShares and Vanguard is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 and IShares MSCI 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 iShares MSCI EAFE are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard Russell go up and down completely randomly.

Pair Corralation between IShares MSCI and Vanguard Russell

Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the Vanguard Russell. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI EAFE is 1.53 times less risky than Vanguard Russell. The etf trades about -0.05 of its potential returns per unit of risk. The Vanguard Russell 2000 is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  19,743  in Vanguard Russell 2000 on September 4, 2024 and sell it today you would earn a total of  3,194  from holding Vanguard Russell 2000 or generate 16.18% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  Vanguard Russell 2000

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Russell 2000

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Vanguard Russell reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Vanguard Russell

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

The idea behind iShares MSCI EAFE and Vanguard Russell 2000 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.