Correlation Between IShares MSCI and Vanguard International
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Vanguard International 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 MSCI and Vanguard International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and Vanguard International High, you can compare the effects of market volatilities on IShares MSCI and Vanguard International 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 MSCI with a short position of Vanguard International. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard International.
Diversification Opportunities for IShares MSCI and Vanguard International
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Vanguard International High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International and IShares MSCI 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 MSCI EAFE are associated (or correlated) with Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard International go up and down completely randomly.
Pair Corralation between IShares MSCI and Vanguard International
Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the Vanguard International. In addition to that, IShares MSCI is 1.02 times more volatile than Vanguard International High. It trades about -0.14 of its total potential returns per unit of risk. Vanguard International High is currently generating about -0.11 per unit of volatility. If you would invest 7,137 in Vanguard International High on August 30, 2024 and sell it today you would lose (145.00) from holding Vanguard International High or give up 2.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI EAFE vs. Vanguard International High
Performance |
| Timeline |
| iShares MSCI EAFE |
| Vanguard International |
IShares MSCI and Vanguard International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Vanguard International
The main advantage of trading using opposite IShares MSCI and Vanguard International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Vanguard International 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 International will offset losses from the drop in Vanguard International's long position.| IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. WisdomTree International SmallCap | IShares MSCI vs. iShares Russell Mid Cap |
Check out your portfolio center.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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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