Correlation Between Vanguard and IShares NASDAQ

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

By analyzing existing cross correlation between Vanguard SP 500 and iShares NASDAQ 100, you can compare the effects of market volatilities on Vanguard and IShares NASDAQ 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 with a short position of IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and IShares NASDAQ.

Diversification Opportunities for Vanguard and IShares NASDAQ

0.83

Correlation Coefficient

Vanguard  IShares NASDAQ

Very poor diversification

The 3 months correlation between Vanguard and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 and Vanguard 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 SP 500 are associated (or correlated) with IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of Vanguard i.e., Vanguard and IShares NASDAQ go up and down completely randomly.

Pair Corralation between Vanguard and IShares NASDAQ

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the IShares NASDAQ. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard SP 500 is 1.46 times less risky than IShares NASDAQ. The etf trades about -0.08 of its potential returns per unit of risk. The iShares NASDAQ 100 is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  96,060  in iShares NASDAQ 100 on February 3, 2024 and sell it today you would lose (1,510) from holding iShares NASDAQ 100 or give up 1.57% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  iShares NASDAQ 100

Vanguard SP 500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares NASDAQ 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares NASDAQ 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 Vanguard and IShares NASDAQ

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

The idea behind Vanguard SP 500 and iShares NASDAQ 100 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.