Correlation Between IShares 1 and Vanguard Long-term

Can any of the company-specific risk be diversified away by investing in both IShares 1 and Vanguard Long-term 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 1 and Vanguard Long-term into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 1 3 Year and Vanguard Long Term Porate, you can compare the effects of market volatilities on IShares 1 and Vanguard Long-term 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 1 with a short position of Vanguard Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 1 and Vanguard Long-term.

Diversification Opportunities for IShares 1 and Vanguard Long-term

0.88

Correlation Coefficient

IShares 1  Vanguard Long-term

Very poor diversification

The 3 months correlation between IShares and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares 1 3 Year and Vanguard Long Term Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Long Term and IShares 1 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 1 3 Year are associated (or correlated) with Vanguard Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Long Term has no effect on the direction of IShares 1 i.e., IShares 1 and Vanguard Long-term go up and down completely randomly.

Pair Corralation between IShares 1 and Vanguard Long-term

Given the investment horizon of 90 days iShares 1 3 Year is expected to under-perform the Vanguard Long-term. But the etf apears to be less risky and, when comparing its historical volatility, iShares 1 3 Year is 1.6 times less risky than Vanguard Long-term. The etf trades about -0.11 of its potential returns per unit of risk. The Vanguard Long Term Porate is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Vanguard Long Term Porate on September 2, 2024 and sell it today you would lose (7.00) from holding Vanguard Long Term Porate or give up 0.33% of portfolio value over 90 days.

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

iShares 1 3 Year  vs.  Vanguard Long Term Porate

iShares 1 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 1 3 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, IShares 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Long Term Porate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Vanguard Long-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares 1 and Vanguard Long-term

The main advantage of trading using opposite IShares 1 and Vanguard Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 1 position performs unexpectedly, Vanguard Long-term 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 Long-term will offset losses from the drop in Vanguard Long-term's long position.

The idea behind iShares 1 3 Year and Vanguard Long Term Porate 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.