Correlation Between Vanguard Small and IShares Morningstar

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

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

Diversification Opportunities for Vanguard Small and IShares Morningstar

0.99

Correlation Coefficient

Vanguard Small  IShares Morningstar

No risk reduction

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

Pair Corralation between Vanguard Small and IShares Morningstar

Considering the 90-day investment horizon Vanguard Small Cap Growth is expected to generate 0.94 times more return on investment than IShares Morningstar. However, Vanguard Small Cap Growth is 1.07 times less risky than IShares Morningstar. It trades about 0.21 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.16 per unit of risk. If you would invest  26,110  in Vanguard Small Cap Growth on August 30, 2024 and sell it today you would earn a total of  3,913  from holding Vanguard Small Cap Growth or generate 14.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Small Cap Growth  vs.  iShares Morningstar Small Cap

Vanguard Small Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental drivers, Vanguard Small disclosed solid returns over the last few months and may actually be approaching a breakup point.

iShares Morningstar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Small and IShares Morningstar

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

The idea behind Vanguard Small Cap Growth and iShares Morningstar Small Cap 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.