Correlation Between Vanguard FTSE and FlexShares Morningstar

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

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

Diversification Opportunities for Vanguard FTSE and FlexShares Morningstar

0.97

Correlation Coefficient

Vanguard FTSE  FlexShares Morningstar

Almost no diversification

The 3 months correlation between Vanguard and FlexShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging and FlexShares Morningstar Emergin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 Emerging are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between Vanguard FTSE and FlexShares Morningstar

Considering the 90-day investment horizon Vanguard FTSE Emerging is expected to generate 1.06 times more return on investment than FlexShares Morningstar. However, Vanguard FTSE is 1.06 times more volatile than FlexShares Morningstar Emerging. It trades about 0.03 of its potential returns per unit of risk. FlexShares Morningstar Emerging is currently generating about 0.0 per unit of risk. If you would invest  4,459  in Vanguard FTSE Emerging on August 30, 2024 and sell it today you would earn a total of  77.00  from holding Vanguard FTSE Emerging or generate 1.73% return on investment over 90 days.

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

Vanguard FTSE Emerging  vs.  FlexShares Morningstar Emergin

Vanguard FTSE Emerging

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Emerging are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FlexShares Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vanguard FTSE and FlexShares Morningstar

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

The idea behind Vanguard FTSE Emerging and FlexShares Morningstar Emerging 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.