Correlation Between IShares Global and Vanguard Industrials

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

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

Diversification Opportunities for IShares Global and Vanguard Industrials

-0.24

Correlation Coefficient

IShares Global  Vanguard Industrials

Very good diversification

The 3 months correlation between IShares and Vanguard is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Timber and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials and IShares Global 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 iShares Global Timber are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of IShares Global i.e., IShares Global and Vanguard Industrials go up and down completely randomly.

Pair Corralation between IShares Global and Vanguard Industrials

Given the investment horizon of 90 days IShares Global is expected to generate 13.52 times less return on investment than Vanguard Industrials. In addition to that, IShares Global is 1.07 times more volatile than Vanguard Industrials Index. It trades about 0.02 of its total potential returns per unit of risk. Vanguard Industrials Index is currently generating about 0.22 per unit of volatility. If you would invest  24,269  in Vanguard Industrials Index on September 5, 2024 and sell it today you would earn a total of  3,312  from holding Vanguard Industrials Index or generate 13.65% return on investment over 90 days.

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

iShares Global Timber  vs.  Vanguard Industrials Index

iShares Global Timber

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Timber are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Industrials

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with IShares Global and Vanguard Industrials

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

The idea behind iShares Global Timber and Vanguard Industrials Index 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.