Correlation Between Vanguard Industrials and IShares Aerospace

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

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

Diversification Opportunities for Vanguard Industrials and IShares Aerospace

0.73

Correlation Coefficient

Vanguard Industrials  IShares Aerospace

Poor diversification

The 3 months correlation between Vanguard and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and iShares Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Aerospace Defense and Vanguard Industrials 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 Industrials Index are associated (or correlated) with IShares Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Aerospace Defense has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and IShares Aerospace go up and down completely randomly.

Pair Corralation between Vanguard Industrials and IShares Aerospace

Considering the 90-day investment horizon Vanguard Industrials Index is expected to under-perform the IShares Aerospace. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Industrials Index is 1.37 times less risky than IShares Aerospace. The etf trades about -0.42 of its potential returns per unit of risk. The iShares Aerospace Defense is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  15,292  in iShares Aerospace Defense on October 1, 2024 and sell it today you would lose (530.00) from holding iShares Aerospace Defense or give up 3.47% of portfolio value over 90 days.

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

Vanguard Industrials Index  vs.  iShares Aerospace Defense

Vanguard Industrials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Industrials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Vanguard Industrials is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Aerospace Defense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Aerospace Defense has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Industrials and IShares Aerospace

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

The idea behind Vanguard Industrials Index and iShares Aerospace Defense 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.