Correlation Between Vanguard Small and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both Vanguard Small and IShares MSCI 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 Vanguard Small and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Small Cap Value and iShares MSCI USA, you can compare the effects of market volatilities on Vanguard Small and IShares MSCI 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 Vanguard Small with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and IShares MSCI.
Diversification Opportunities for Vanguard Small and IShares MSCI
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Value and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and Vanguard Small 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 Vanguard Small Cap Value are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Vanguard Small i.e., Vanguard Small and IShares MSCI go up and down completely randomly.
Pair Corralation between Vanguard Small and IShares MSCI
Considering the 90-day investment horizon Vanguard Small is expected to generate 1.36 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Vanguard Small Cap Value is 1.1 times less risky than IShares MSCI. It trades about 0.26 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 6,681 in iShares MSCI USA on August 29, 2024 and sell it today you would earn a total of 686.00 from holding iShares MSCI USA or generate 10.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Small Cap Value vs. iShares MSCI USA
Performance |
| Timeline |
| Vanguard Small Cap |
| iShares MSCI USA |
Vanguard Small and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Small and IShares MSCI
The main advantage of trading using opposite Vanguard Small and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small position performs unexpectedly, IShares MSCI 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.| Vanguard Small vs. Vanguard Mid Cap Value | Vanguard Small vs. Vanguard Small Cap Growth | Vanguard Small vs. Vanguard Value Index | Vanguard Small vs. Vanguard Small Cap Index |
| IShares MSCI vs. Vanguard Mid Cap Index | IShares MSCI vs. Vanguard Small Cap Value | IShares MSCI vs. Vanguard FTSE Emerging | IShares MSCI vs. Vanguard Large Cap Index |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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