Correlation Between IShares Core and Vanguard FTSE

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

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

Diversification Opportunities for IShares Core and Vanguard FTSE

0.56

Correlation Coefficient

IShares Core  Vanguard FTSE

Very weak diversification

The 3 months correlation between IShares and Vanguard is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Vanguard FTSE Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Japan and IShares Core 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 Core MSCI are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Japan has no effect on the direction of IShares Core i.e., IShares Core and Vanguard FTSE go up and down completely randomly.

Pair Corralation between IShares Core and Vanguard FTSE

Assuming the 90 days trading horizon iShares Core MSCI is expected to generate 0.84 times more return on investment than Vanguard FTSE. However, iShares Core MSCI is 1.19 times less risky than Vanguard FTSE. It trades about 0.07 of its potential returns per unit of risk. Vanguard FTSE Japan is currently generating about -0.26 per unit of risk. If you would invest  3,020  in iShares Core MSCI on January 28, 2024 and sell it today you would earn a total of  34.00  from holding iShares Core MSCI or generate 1.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

iShares Core MSCI  vs.  Vanguard FTSE Japan

iShares Core MSCI

Risk-Adjusted Performance

11 of 100

Good

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

Vanguard FTSE Japan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Japan are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Core and Vanguard FTSE

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

The idea behind iShares Core MSCI and Vanguard FTSE Japan 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.