Correlation Between IShares Financials and IShares Energy
Can any of the company-specific risk be diversified away by investing in both IShares Financials 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 Financials 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 Financials ETF and iShares Energy ETF, you can compare the effects of market volatilities on IShares Financials 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 Financials with a short position of IShares Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financials and IShares Energy.
Diversification Opportunities for IShares Financials and IShares Energy
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials 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 Financials 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 Financials 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 Financials i.e., IShares Financials and IShares Energy go up and down completely randomly.
Pair Corralation between IShares Financials and IShares Energy
Considering the 90-day investment horizon iShares Financials ETF is expected to generate 0.75 times more return on investment than IShares Energy. However, iShares Financials ETF is 1.33 times less risky than IShares Energy. It trades about 0.32 of its potential returns per unit of risk. iShares Energy ETF is currently generating about 0.1 per unit of risk. If you would invest 11,156 in iShares Financials ETF on November 4, 2024 and sell it today you would earn a total of 713.00 from holding iShares Financials ETF or generate 6.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financials ETF vs. iShares Energy ETF
Performance |
| Timeline |
| iShares Financials ETF |
| iShares Energy ETF |
IShares Financials and IShares Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financials and IShares Energy
The main advantage of trading using opposite IShares Financials and IShares Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financials 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 Financials vs. iShares Financial Services | IShares Financials vs. iShares Industrials ETF | IShares Financials vs. iShares Consumer Discretionary | IShares Financials vs. iShares Healthcare 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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