Correlation Between IShares SPTSX and Vanguard Total

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

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

Diversification Opportunities for IShares SPTSX and Vanguard Total

0.96

Correlation Coefficient

IShares SPTSX  Vanguard Total

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped and Vanguard Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Market and IShares SPTSX 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 SPTSX Capped are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Market has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and Vanguard Total go up and down completely randomly.

Pair Corralation between IShares SPTSX and Vanguard Total

Assuming the 90 days trading horizon iShares SPTSX Capped is expected to generate 1.95 times more return on investment than Vanguard Total. However, IShares SPTSX is 1.95 times more volatile than Vanguard Total Market. It trades about 0.11 of its potential returns per unit of risk. Vanguard Total Market is currently generating about 0.18 per unit of risk. If you would invest  4,945  in iShares SPTSX Capped on September 14, 2024 and sell it today you would earn a total of  2,176  from holding iShares SPTSX Capped or generate 44.0% return on investment over 90 days.

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

iShares SPTSX Capped  vs.  Vanguard Total Market

iShares SPTSX Capped

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Capped are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Total Market

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Total displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares SPTSX and Vanguard Total

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

The idea behind iShares SPTSX Capped and Vanguard Total Market 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.