Correlation Between Vanguard FTSE and IShares MSCI

Can any of the company-specific risk be diversified away by investing in both Vanguard FTSE 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 FTSE 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 FTSE Developed and iShares MSCI USA, you can compare the effects of market volatilities on Vanguard FTSE 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 FTSE with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and IShares MSCI.

Diversification Opportunities for Vanguard FTSE and IShares MSCI

-0.51

Correlation Coefficient

Vanguard FTSE  IShares MSCI

Excellent diversification

The 3 months correlation between Vanguard and IShares is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and Vanguard FTSE 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 FTSE Developed 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 USA has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard FTSE and IShares MSCI

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to generate 0.03 times more return on investment than IShares MSCI. However, Vanguard FTSE Developed is 28.86 times less risky than IShares MSCI. It trades about -0.12 of its potential returns per unit of risk. iShares MSCI USA is currently generating about -0.22 per unit of risk. If you would invest  4,897  in Vanguard FTSE Developed on September 28, 2024 and sell it today you would lose (93.00) from holding Vanguard FTSE Developed or give up 1.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Vanguard FTSE Developed  vs.  iShares MSCI USA

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares MSCI USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Etf's essential indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with Vanguard FTSE and IShares MSCI

The main advantage of trading using opposite Vanguard FTSE and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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 FTSE Developed and iShares MSCI USA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.