Correlation Between IShares Aerospace and IShares Transportation
Can any of the company-specific risk be diversified away by investing in both IShares Aerospace and IShares Transportation 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 Aerospace and IShares Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Aerospace Defense and iShares Transportation Average, you can compare the effects of market volatilities on IShares Aerospace and IShares Transportation 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 Aerospace with a short position of IShares Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Aerospace and IShares Transportation.
Diversification Opportunities for IShares Aerospace and IShares Transportation
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation and IShares Aerospace 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 Aerospace Defense are associated (or correlated) with IShares Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and IShares Transportation go up and down completely randomly.
Pair Corralation between IShares Aerospace and IShares Transportation
Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.81 times more return on investment than IShares Transportation. However, iShares Aerospace Defense is 1.24 times less risky than IShares Transportation. It trades about 0.08 of its potential returns per unit of risk. iShares Transportation Average is currently generating about 0.06 per unit of risk. If you would invest 10,960 in iShares Aerospace Defense on September 3, 2024 and sell it today you would earn a total of 4,597 from holding iShares Aerospace Defense or generate 41.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Aerospace Defense vs. iShares Transportation Average
Performance |
| Timeline |
| iShares Aerospace Defense |
| iShares Transportation |
IShares Aerospace and IShares Transportation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Aerospace and IShares Transportation
The main advantage of trading using opposite IShares Aerospace and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace position performs unexpectedly, IShares Transportation 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 Transportation will offset losses from the drop in IShares Transportation's long position.| IShares Aerospace vs. SPDR SP Aerospace | IShares Aerospace vs. Invesco Aerospace Defense | IShares Aerospace vs. iShares Medical Devices | IShares Aerospace vs. iShares Expanded Tech Software |
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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