Correlation Between IShares MSCI and Vanguard
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Vanguard 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 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 SP 500, you can compare the effects of market volatilities on IShares MSCI and Vanguard 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Vanguard.
Diversification Opportunities for IShares MSCI and Vanguard
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between IShares and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and Vanguard go up and down completely randomly.
Pair Corralation between IShares MSCI and Vanguard
Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.13 times less return on investment than Vanguard. But when comparing it to its historical volatility, iShares MSCI World is 1.09 times less risky than Vanguard. It trades about 0.19 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 7,335 in Vanguard SP 500 on August 25, 2024 and sell it today you would earn a total of 3,535 from holding Vanguard SP 500 or generate 48.19% 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 SP 500
Performance |
| Timeline |
| iShares MSCI World |
| Vanguard SP 500 |
IShares MSCI and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Vanguard
The main advantage of trading using opposite IShares MSCI and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Vanguard 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 will offset losses from the drop in Vanguard's long position.| IShares MSCI vs. Vanguard SP 500 | IShares MSCI vs. SPDR Dow Jones | IShares MSCI vs. iShares Core MSCI | IShares MSCI vs. iShares SP 500 |
| Vanguard vs. SPDR Dow Jones | Vanguard vs. iShares Core MSCI | Vanguard vs. iShares SP 500 | Vanguard vs. Vanguard FTSE All World |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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