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 World, 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

-0.41

Correlation Coefficient

Vanguard FTSE  IShares MSCI

Very good diversification

The 3 months correlation between Vanguard and IShares is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and iShares MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI World 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 World 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

Assuming the 90 days trading horizon Vanguard FTSE is expected to generate 20.0 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Vanguard FTSE Developed is 1.01 times less risky than IShares MSCI. It trades about 0.01 of its potential returns per unit of risk. iShares MSCI World is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  6,834  in iShares MSCI World on September 5, 2024 and sell it today you would earn a total of  934.00  from holding iShares MSCI World or generate 13.67% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  iShares MSCI World

Vanguard FTSE Developed

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares MSCI World

Risk-Adjusted Performance

21 of 100

Solid

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

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 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.