Correlation Between Vanguard Small and IShares MSCI

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

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

Diversification Opportunities for Vanguard Small and IShares MSCI

-0.31

Correlation Coefficient

Vanguard Small  IShares MSCI

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and iShares MSCI Intl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Intl and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Intl has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Small and IShares MSCI

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the IShares MSCI. In addition to that, Vanguard Small is 1.2 times more volatile than iShares MSCI Intl. It trades about -0.29 of its total potential returns per unit of risk. iShares MSCI Intl is currently generating about -0.07 per unit of volatility. If you would invest  3,818  in iShares MSCI Intl on September 26, 2024 and sell it today you would lose (49.00) from holding iShares MSCI Intl or give up 1.28% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  iShares MSCI Intl

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares MSCI Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Vanguard Small and IShares MSCI

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

The idea behind Vanguard Small Cap Index and iShares MSCI Intl 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.