Correlation Between BetaShares Australia and IShares SP
Can any of the company-specific risk be diversified away by investing in both BetaShares Australia and IShares SP 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 BetaShares Australia and IShares SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BetaShares Australia 200 and iShares SP 500, you can compare the effects of market volatilities on BetaShares Australia and IShares SP 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 BetaShares Australia with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaShares Australia and IShares SP.
Diversification Opportunities for BetaShares Australia and IShares SP
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BetaShares and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BetaShares Australia 200 and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 and BetaShares Australia 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 BetaShares Australia 200 are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of BetaShares Australia i.e., BetaShares Australia and IShares SP go up and down completely randomly.
Pair Corralation between BetaShares Australia and IShares SP
Assuming the 90 days trading horizon BetaShares Australia is expected to generate 1.39 times less return on investment than IShares SP. But when comparing it to its historical volatility, BetaShares Australia 200 is 1.06 times less risky than IShares SP. It trades about 0.12 of its potential returns per unit of risk. iShares SP 500 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 4,016 in iShares SP 500 on September 1, 2024 and sell it today you would earn a total of 1,502 from holding iShares SP 500 or generate 37.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
BetaShares Australia 200 vs. iShares SP 500
Performance |
| Timeline |
| BetaShares Australia 200 |
| iShares SP 500 |
BetaShares Australia and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BetaShares Australia and IShares SP
The main advantage of trading using opposite BetaShares Australia and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BetaShares Australia position performs unexpectedly, IShares SP 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 SP will offset losses from the drop in IShares SP's long position.The idea behind BetaShares Australia 200 and iShares SP 500 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.
| IShares SP vs. ETFS Morningstar Global | IShares SP vs. BetaShares Geared Equity | IShares SP vs. VanEck Vectors Australian | IShares SP vs. SPDR SPASX 200 |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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