Correlation Between IShares MSCI and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 MSCI 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 MSCI World and Vanguard FTSE All World, you can compare the effects of market volatilities on IShares MSCI 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 MSCI with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard FTSE.
Diversification Opportunities for IShares MSCI and Vanguard FTSE
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and Vanguard FTSE All World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All 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 World 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 All has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard FTSE go up and down completely randomly.
Pair Corralation between IShares MSCI and Vanguard FTSE
Assuming the 90 days trading horizon iShares MSCI World is expected to generate 1.3 times more return on investment than Vanguard FTSE. However, IShares MSCI is 1.3 times more volatile than Vanguard FTSE All World. It trades about 0.23 of its potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.15 per unit of risk. If you would invest 7,330 in iShares MSCI World on August 29, 2024 and sell it today you would earn a total of 376.00 from holding iShares MSCI World or generate 5.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI World vs. Vanguard FTSE All World
Performance |
| Timeline |
| iShares MSCI World |
| Vanguard FTSE All |
IShares MSCI and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Vanguard FTSE
The main advantage of trading using opposite IShares MSCI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 MSCI World and Vanguard FTSE All World 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.| Vanguard FTSE vs. iShares II Public | Vanguard FTSE vs. iShares Core MSCI | Vanguard FTSE vs. iShares SP 500 |
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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