Correlation Between Vanguard FTSE and IShares China

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

By analyzing existing cross correlation between Vanguard FTSE All World and iShares China CNY, you can compare the effects of market volatilities on Vanguard FTSE and IShares China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and IShares China.

Diversification Opportunities for Vanguard FTSE and IShares China

0.83

Correlation Coefficient

Vanguard FTSE  IShares China

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and iShares China CNY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China CNY 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 All World are associated (or correlated) with IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China CNY has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and IShares China go up and down completely randomly.

Pair Corralation between Vanguard FTSE and IShares China

Assuming the 90 days trading horizon Vanguard FTSE All World is expected to generate 2.53 times more return on investment than IShares China. However, Vanguard FTSE is 2.53 times more volatile than iShares China CNY. It trades about 0.19 of its potential returns per unit of risk. iShares China CNY is currently generating about 0.1 per unit of risk. If you would invest  12,309  in Vanguard FTSE All World on September 23, 2024 and sell it today you would earn a total of  975.00  from holding Vanguard FTSE All World or generate 7.92% return on investment over 90 days.

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

Vanguard FTSE All World  vs.  iShares China CNY

Vanguard FTSE All

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares China CNY

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China CNY are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares China is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard FTSE and IShares China

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

The idea behind Vanguard FTSE All World and iShares China CNY 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.