Correlation Between IShares MSCI and Vanguard Index

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

By analyzing existing cross correlation between iShares MSCI Netherlands and Vanguard Index Funds, you can compare the effects of market volatilities on IShares MSCI and Vanguard Index 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 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard Index.

Diversification Opportunities for IShares MSCI and Vanguard Index

-0.85

Correlation Coefficient

IShares MSCI  Vanguard Index

Pay attention - limited upside

The 3 months correlation between IShares and Vanguard is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Netherlands and Vanguard Index Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Index Funds 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 Netherlands are associated (or correlated) with Vanguard Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Index Funds has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard Index go up and down completely randomly.

Pair Corralation between IShares MSCI and Vanguard Index

Assuming the 90 days trading horizon iShares MSCI Netherlands is expected to under-perform the Vanguard Index. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Netherlands is 1.28 times less risky than Vanguard Index. The etf trades about -0.1 of its potential returns per unit of risk. The Vanguard Index Funds is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  533,155  in Vanguard Index Funds on September 15, 2024 and sell it today you would earn a total of  70,745  from holding Vanguard Index Funds or generate 13.27% return on investment over 90 days.

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

iShares MSCI Netherlands  vs.  Vanguard Index Funds

iShares MSCI Netherlands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Netherlands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Index Funds

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Funds are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Vanguard Index showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Vanguard Index

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

The idea behind iShares MSCI Netherlands and Vanguard Index Funds 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.