Correlation Between OShares Europe and Vanguard FTSE

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

By analyzing existing cross correlation between OShares Europe Quality and Vanguard FTSE Pacific, you can compare the effects of market volatilities on OShares Europe 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 OShares Europe with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of OShares Europe and Vanguard FTSE.

Diversification Opportunities for OShares Europe and Vanguard FTSE

0.83

Correlation Coefficient

OShares Europe  Vanguard FTSE

Very poor diversification

The 3 months correlation between OShares and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding OShares Europe Quality and Vanguard FTSE Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Pacific and OShares Europe 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 OShares Europe Quality 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 Pacific has no effect on the direction of OShares Europe i.e., OShares Europe and Vanguard FTSE go up and down completely randomly.

Pair Corralation between OShares Europe and Vanguard FTSE

Given the investment horizon of 90 days OShares Europe Quality is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, OShares Europe Quality is 1.15 times less risky than Vanguard FTSE. The etf trades about -0.11 of its potential returns per unit of risk. The Vanguard FTSE Pacific is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,570  in Vanguard FTSE Pacific on September 4, 2024 and sell it today you would earn a total of  1.00  from holding Vanguard FTSE Pacific or generate 0.01% return on investment over 90 days.

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

OShares Europe Quality  vs.  Vanguard FTSE Pacific

OShares Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, OShares Europe is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard FTSE Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with OShares Europe and Vanguard FTSE

The main advantage of trading using opposite OShares Europe and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OShares Europe 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 OShares Europe Quality and Vanguard FTSE Pacific 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.