Correlation Between IShares SP and Vanguard FTSE

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

By analyzing existing cross correlation between iShares SP 500 and Vanguard FTSE All World, you can compare the effects of market volatilities on IShares SP and Vanguard FTSE 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 SP with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Vanguard FTSE.

Diversification Opportunities for IShares SP and Vanguard FTSE

0.99

Correlation Coefficient

IShares SP  Vanguard FTSE

No risk reduction

The 3 months correlation between IShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All and IShares SP 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 SP 500 are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All has no effect on the direction of IShares SP i.e., IShares SP and Vanguard FTSE go up and down completely randomly.

Pair Corralation between IShares SP and Vanguard FTSE

Assuming the 90 days trading horizon iShares SP 500 is expected to generate 1.24 times more return on investment than Vanguard FTSE. However, IShares SP is 1.24 times more volatile than Vanguard FTSE All World. It trades about 0.27 of its potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.27 per unit of risk. If you would invest  5,049  in iShares SP 500 on September 13, 2024 and sell it today you would earn a total of  737.00  from holding iShares SP 500 or generate 14.6% return on investment over 90 days.

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

iShares SP 500  vs.  Vanguard FTSE All World

iShares SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vanguard FTSE All

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares SP and Vanguard FTSE

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

The idea behind iShares SP 500 and Vanguard FTSE All World 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.