Correlation Between FlexShares ESG and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both FlexShares ESG and Vanguard Total 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 FlexShares ESG and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares ESG Climate and Vanguard Total Stock, you can compare the effects of market volatilities on FlexShares ESG and Vanguard Total 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 FlexShares ESG with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares ESG and Vanguard Total.
Diversification Opportunities for FlexShares ESG and Vanguard Total
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between FlexShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares ESG Climate and Vanguard Total Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Stock and FlexShares ESG 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 FlexShares ESG Climate are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Stock has no effect on the direction of FlexShares ESG i.e., FlexShares ESG and Vanguard Total go up and down completely randomly.
Pair Corralation between FlexShares ESG and Vanguard Total
Given the investment horizon of 90 days FlexShares ESG is expected to generate 1.15 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, FlexShares ESG Climate is 1.04 times less risky than Vanguard Total. It trades about 0.36 of its potential returns per unit of risk. Vanguard Total Stock is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 28,103 in Vanguard Total Stock on September 1, 2024 and sell it today you would earn a total of 1,883 from holding Vanguard Total Stock or generate 6.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
FlexShares ESG Climate vs. Vanguard Total Stock
Performance |
| Timeline |
| FlexShares ESG Climate |
| Vanguard Total Stock |
FlexShares ESG and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares ESG and Vanguard Total
The main advantage of trading using opposite FlexShares ESG and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares ESG position performs unexpectedly, Vanguard Total 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 Total will offset losses from the drop in Vanguard Total's long position.| FlexShares ESG vs. Vanguard Total Stock | FlexShares ESG vs. SPDR SP 500 | FlexShares ESG vs. iShares Core SP | FlexShares ESG vs. Vanguard Dividend Appreciation |
| Vanguard Total vs. Vanguard SP 500 | Vanguard Total vs. Vanguard Total International | Vanguard Total vs. Vanguard Real Estate | Vanguard Total vs. Vanguard Total Bond |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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