Correlation Between IShares Morningstar and Vanguard Small

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

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

Diversification Opportunities for IShares Morningstar and Vanguard Small

1.0

Correlation Coefficient

IShares Morningstar  Vanguard Small

No risk reduction

The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Small Cap and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and IShares Morningstar 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 Morningstar Small Cap are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and Vanguard Small go up and down completely randomly.

Pair Corralation between IShares Morningstar and Vanguard Small

Given the investment horizon of 90 days iShares Morningstar Small Cap is expected to generate 0.99 times more return on investment than Vanguard Small. However, iShares Morningstar Small Cap is 1.01 times less risky than Vanguard Small. It trades about 0.18 of its potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.17 per unit of risk. If you would invest  4,569  in iShares Morningstar Small Cap on May 3, 2025 and sell it today you would earn a total of  527.00  from holding iShares Morningstar Small Cap or generate 11.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

iShares Morningstar Small Cap  vs.  Vanguard Small Cap Growth

iShares Morningstar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Vanguard Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Morningstar and Vanguard Small

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

The idea behind iShares Morningstar Small Cap and Vanguard Small Cap Growth 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.