Correlation Between IShares Canadian and Vanguard Canadian

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

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

Diversification Opportunities for IShares Canadian and Vanguard Canadian

-0.14

Correlation Coefficient

IShares Canadian  Vanguard Canadian

Good diversification

The 3 months correlation between IShares and Vanguard is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Value and Vanguard Canadian Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Canadian and IShares Canadian 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 Canadian Value are associated (or correlated) with Vanguard Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Canadian has no effect on the direction of IShares Canadian i.e., IShares Canadian and Vanguard Canadian go up and down completely randomly.

Pair Corralation between IShares Canadian and Vanguard Canadian

Assuming the 90 days trading horizon iShares Canadian Value is expected to generate 1.33 times more return on investment than Vanguard Canadian. However, IShares Canadian is 1.33 times more volatile than Vanguard Canadian Government. It trades about 0.24 of its potential returns per unit of risk. Vanguard Canadian Government is currently generating about 0.01 per unit of risk. If you would invest  3,733  in iShares Canadian Value on September 13, 2024 and sell it today you would earn a total of  298.00  from holding iShares Canadian Value or generate 7.98% return on investment over 90 days.

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

iShares Canadian Value  vs.  Vanguard Canadian Government

iShares Canadian Value

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Value are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Canadian

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Canadian Government has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and Vanguard Canadian

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

The idea behind iShares Canadian Value and Vanguard Canadian Government 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.