Correlation Between IShares NASDAQ and Vanguard Total

Can any of the company-specific risk be diversified away by investing in both IShares NASDAQ 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 NASDAQ 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 NASDAQ 100 and Vanguard Total Market, you can compare the effects of market volatilities on IShares NASDAQ 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 NASDAQ with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares NASDAQ and Vanguard Total.

Diversification Opportunities for IShares NASDAQ and Vanguard Total

0.95

Correlation Coefficient

IShares NASDAQ  Vanguard Total

Almost no diversification

The 3 months correlation between IShares and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares NASDAQ 100 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 NASDAQ 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 NASDAQ 100 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 NASDAQ i.e., IShares NASDAQ and Vanguard Total go up and down completely randomly.

Pair Corralation between IShares NASDAQ and Vanguard Total

Assuming the 90 days trading horizon iShares NASDAQ 100 is expected to generate 1.57 times more return on investment than Vanguard Total. However, IShares NASDAQ is 1.57 times more volatile than Vanguard Total Market. It trades about 0.12 of its potential returns per unit of risk. Vanguard Total Market is currently generating about 0.14 per unit of risk. If you would invest  2,773  in iShares NASDAQ 100 on September 22, 2024 and sell it today you would earn a total of  2,580  from holding iShares NASDAQ 100 or generate 93.04% return on investment over 90 days.

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

iShares NASDAQ 100  vs.  Vanguard Total Market

iShares NASDAQ 100

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Total Market

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares NASDAQ and Vanguard Total

The main advantage of trading using opposite IShares NASDAQ and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares NASDAQ 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 NASDAQ 100 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.