Correlation Between IShares Utilities and IShares Energy
Can any of the company-specific risk be diversified away by investing in both IShares Utilities and IShares Energy 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 Utilities and IShares Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Utilities ETF and iShares Energy ETF, you can compare the effects of market volatilities on IShares Utilities and IShares Energy 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 Utilities with a short position of IShares Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Utilities and IShares Energy.
Diversification Opportunities for IShares Utilities and IShares Energy
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares Utilities ETF and iShares Energy ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Energy ETF and IShares Utilities 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 Utilities ETF are associated (or correlated) with IShares Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Energy ETF has no effect on the direction of IShares Utilities i.e., IShares Utilities and IShares Energy go up and down completely randomly.
Pair Corralation between IShares Utilities and IShares Energy
Considering the 90-day investment horizon IShares Utilities is expected to generate 1.03 times less return on investment than IShares Energy. But when comparing it to its historical volatility, iShares Utilities ETF is 1.06 times less risky than IShares Energy. It trades about 0.11 of its potential returns per unit of risk. iShares Energy ETF is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,655 in iShares Energy ETF on November 4, 2024 and sell it today you would earn a total of 122.00 from holding iShares Energy ETF or generate 2.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Utilities ETF vs. iShares Energy ETF
Performance |
| Timeline |
| iShares Utilities ETF |
| iShares Energy ETF |
IShares Utilities and IShares Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Utilities and IShares Energy
The main advantage of trading using opposite IShares Utilities and IShares Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Utilities position performs unexpectedly, IShares Energy 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 Energy will offset losses from the drop in IShares Energy's long position.| IShares Utilities vs. iShares Industrials ETF | IShares Utilities vs. iShares Consumer Discretionary | IShares Utilities vs. iShares Consumer Staples | IShares Utilities vs. iShares Telecommunications ETF |
| IShares Energy vs. iShares Basic Materials | IShares Energy vs. iShares Utilities ETF | IShares Energy vs. iShares Financials ETF | IShares Energy vs. iShares Healthcare ETF |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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