Correlation Between IShares Floating and Vanguard Canadian

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

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

Diversification Opportunities for IShares Floating and Vanguard Canadian

-0.3

Correlation Coefficient

IShares Floating  Vanguard Canadian

Very good diversification

The 3 months correlation between IShares and Vanguard is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding iShares Floating Rate and Vanguard Canadian Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Canadian Long and IShares Floating 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 Floating Rate are associated (or correlated) with Vanguard Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Canadian Long has no effect on the direction of IShares Floating i.e., IShares Floating and Vanguard Canadian go up and down completely randomly.

Pair Corralation between IShares Floating and Vanguard Canadian

Assuming the 90 days trading horizon iShares Floating Rate is expected to generate 0.08 times more return on investment than Vanguard Canadian. However, iShares Floating Rate is 13.11 times less risky than Vanguard Canadian. It trades about 0.19 of its potential returns per unit of risk. Vanguard Canadian Long Term is currently generating about -0.06 per unit of risk. If you would invest  1,991  in iShares Floating Rate on March 22, 2025 and sell it today you would earn a total of  13.00  from holding iShares Floating Rate or generate 0.65% return on investment over 90 days.

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

iShares Floating Rate  vs.  Vanguard Canadian Long Term

iShares Floating Rate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Floating Rate are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Floating is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Canadian Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Canadian Long Term has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Vanguard Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Floating and Vanguard Canadian

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

The idea behind iShares Floating Rate and Vanguard Canadian Long Term 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.