Correlation Between IShares SP and New Sources
Can any of the company-specific risk be diversified away by investing in both IShares SP and New Sources 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 SP and New Sources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares SP 500 and New Sources Energy, you can compare the effects of market volatilities on IShares SP and New Sources 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 SP with a short position of New Sources. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and New Sources.
Diversification Opportunities for IShares SP and New Sources
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between IShares and New is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and New Sources Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Sources Energy and IShares SP 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 SP 500 are associated (or correlated) with New Sources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Sources Energy has no effect on the direction of IShares SP i.e., IShares SP and New Sources go up and down completely randomly.
Pair Corralation between IShares SP and New Sources
Assuming the 90 days trading horizon iShares SP 500 is expected to under-perform the New Sources. But the etf apears to be less risky and, when comparing its historical volatility, iShares SP 500 is 5.88 times less risky than New Sources. The etf trades about -0.03 of its potential returns per unit of risk. The New Sources Energy is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 1.75 in New Sources Energy on August 31, 2024 and sell it today you would lose (0.05) from holding New Sources Energy or give up 2.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
iShares SP 500 vs. New Sources Energy
Performance |
| Timeline |
| iShares SP 500 |
| New Sources Energy |
IShares SP and New Sources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares SP and New Sources
The main advantage of trading using opposite IShares SP and New Sources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP position performs unexpectedly, New Sources 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 New Sources will offset losses from the drop in New Sources' long position.The idea behind iShares SP 500 and New Sources Energy 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.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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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