Correlation Between Vanguard Small and IShares MSCI

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

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

Diversification Opportunities for Vanguard Small and IShares MSCI

0.98

Correlation Coefficient

Vanguard Small  IShares MSCI

Almost no diversification

The 3 months correlation between Vanguard and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares MSCI go up and down completely randomly.

Pair Corralation between Vanguard Small and IShares MSCI

Allowing for the 90-day total investment horizon Vanguard Small is expected to generate 1.03 times less return on investment than IShares MSCI. In addition to that, Vanguard Small is 1.24 times more volatile than iShares MSCI USA. It trades about 0.12 of its total potential returns per unit of risk. iShares MSCI USA is currently generating about 0.15 per unit of volatility. If you would invest  3,988  in iShares MSCI USA on August 23, 2024 and sell it today you would earn a total of  307.00  from holding iShares MSCI USA or generate 7.7% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  iShares MSCI USA

Vanguard Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Vanguard Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares MSCI USA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Small and IShares MSCI

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

The idea behind Vanguard Small Cap Index and iShares MSCI USA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..