Correlation Between Vanguard Total and IShares Trust

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

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

Diversification Opportunities for Vanguard Total and IShares Trust

0.75

Correlation Coefficient

Vanguard Total  IShares Trust

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Vanguard Total 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 Total Stock are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Vanguard Total i.e., Vanguard Total and IShares Trust go up and down completely randomly.

Pair Corralation between Vanguard Total and IShares Trust

Considering the 90-day investment horizon Vanguard Total Stock is expected to generate 1.43 times more return on investment than IShares Trust. However, Vanguard Total is 1.43 times more volatile than iShares Trust. It trades about 0.09 of its potential returns per unit of risk. iShares Trust is currently generating about -0.01 per unit of risk. If you would invest  28,129  in Vanguard Total Stock on September 23, 2024 and sell it today you would earn a total of  1,199  from holding Vanguard Total Stock or generate 4.26% return on investment over 90 days.

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

Vanguard Total Stock  vs.  iShares Trust

Vanguard Total Stock

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Total is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Total and IShares Trust

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

The idea behind Vanguard Total Stock and iShares Trust 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.