Correlation Between FlexShares International and IQ Real
Can any of the company-specific risk be diversified away by investing in both FlexShares International and IQ Real 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 FlexShares International and IQ Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and IQ Real Estate, you can compare the effects of market volatilities on FlexShares International and IQ Real 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 FlexShares International with a short position of IQ Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and IQ Real.
Diversification Opportunities for FlexShares International and IQ Real
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FlexShares and ROOF is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and IQ Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ Real Estate and FlexShares International 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 FlexShares International Quality are associated (or correlated) with IQ Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ Real Estate has no effect on the direction of FlexShares International i.e., FlexShares International and IQ Real go up and down completely randomly.
Pair Corralation between FlexShares International and IQ Real
Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the IQ Real. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares International Quality is 1.05 times less risky than IQ Real. The etf trades about -0.19 of its potential returns per unit of risk. The IQ Real Estate is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest 2,135 in IQ Real Estate on August 30, 2024 and sell it today you would lose (60.00) from holding IQ Real Estate or give up 2.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 78.26% |
| Values | Daily Returns |
FlexShares International Quali vs. IQ Real Estate
Performance |
| Timeline |
| FlexShares International |
| IQ Real Estate |
FlexShares International and IQ Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares International and IQ Real
The main advantage of trading using opposite FlexShares International and IQ Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, IQ Real 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 IQ Real will offset losses from the drop in IQ Real's long position.The idea behind FlexShares International Quality and IQ Real Estate 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.
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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