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 USA 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
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between IShares and Vanguard is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA 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 USA 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 USA is expected to generate 0.98 times more return on investment than Vanguard. However, iShares MSCI USA is 1.02 times less risky than Vanguard. It trades about -0.23 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about -0.43 per unit of risk. If you would invest 1,094 in iShares MSCI USA on December 8, 2024 and sell it today you would lose (62.00) from holding iShares MSCI USA or give up 5.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI USA vs. Vanguard SP 500
Performance |
| Timeline |
| iShares MSCI USA |
| 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. iShares Euro Dividend | ||
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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