Correlation Between Vanguard MSCI and ETFS Morningstar

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

By analyzing existing cross correlation between Vanguard MSCI International and ETFS Morningstar Global, you can compare the effects of market volatilities on Vanguard MSCI and ETFS 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 MSCI with a short position of ETFS Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard MSCI and ETFS Morningstar.

Diversification Opportunities for Vanguard MSCI and ETFS Morningstar

0.94

Correlation Coefficient

Vanguard MSCI  ETFS Morningstar

Almost no diversification

The 3 months correlation between Vanguard and ETFS is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard MSCI International and ETFS Morningstar Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Morningstar Global and Vanguard MSCI 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 MSCI International are associated (or correlated) with ETFS Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Morningstar Global has no effect on the direction of Vanguard MSCI i.e., Vanguard MSCI and ETFS Morningstar go up and down completely randomly.

Pair Corralation between Vanguard MSCI and ETFS Morningstar

Assuming the 90 days trading horizon Vanguard MSCI is expected to generate 2.41 times less return on investment than ETFS Morningstar. But when comparing it to its historical volatility, Vanguard MSCI International is 2.19 times less risky than ETFS Morningstar. It trades about 0.2 of its potential returns per unit of risk. ETFS Morningstar Global is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,740  in ETFS Morningstar Global on September 14, 2024 and sell it today you would earn a total of  1,835  from holding ETFS Morningstar Global or generate 18.84% return on investment over 90 days.

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

Vanguard MSCI International  vs.  ETFS Morningstar Global

Vanguard MSCI Intern

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard MSCI International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ETFS Morningstar Global

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Morningstar Global are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETFS Morningstar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard MSCI and ETFS Morningstar

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

The idea behind Vanguard MSCI International and ETFS Morningstar Global 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.