Correlation Between IShares Infrastructure and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both IShares Infrastructure 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 Infrastructure 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 Infrastructure ETF and Vanguard Total Stock, you can compare the effects of market volatilities on IShares Infrastructure 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 Infrastructure with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Infrastructure and Vanguard Total.
Diversification Opportunities for IShares Infrastructure and Vanguard Total
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Vanguard is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Infrastructure ETF and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and IShares Infrastructure 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 Infrastructure ETF 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 Stock has no effect on the direction of IShares Infrastructure i.e., IShares Infrastructure and Vanguard Total go up and down completely randomly.
Pair Corralation between IShares Infrastructure and Vanguard Total
Given the investment horizon of 90 days iShares Infrastructure ETF is expected to generate 1.3 times more return on investment than Vanguard Total. However, IShares Infrastructure is 1.3 times more volatile than Vanguard Total Stock. It trades about -0.1 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about -0.37 per unit of risk. If you would invest 4,255 in iShares Infrastructure ETF on January 21, 2024 and sell it today you would lose (81.00) from holding iShares Infrastructure ETF or give up 1.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Infrastructure ETF vs. Vanguard Total Stock
Performance |
| Timeline |
| iShares Infrastructure |
| Vanguard Total Stock |
IShares Infrastructure and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Infrastructure and Vanguard Total
The main advantage of trading using opposite IShares Infrastructure and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Infrastructure 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 Infrastructure ETF and Vanguard Total Stock 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.
| Vanguard Total vs. Dimensional Targeted Value | Vanguard Total vs. Dimensional World ex | Vanguard Total vs. Dimensional Small Cap |
Check out your portfolio center.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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