Correlation Between IShares Consumer and IShares Basic
Can any of the company-specific risk be diversified away by investing in both IShares Consumer and IShares Basic 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 Consumer and IShares Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Consumer Staples and iShares Basic Materials, you can compare the effects of market volatilities on IShares Consumer and IShares Basic 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 Consumer with a short position of IShares Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Consumer and IShares Basic.
Diversification Opportunities for IShares Consumer and IShares Basic
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between IShares and IShares is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials and IShares Consumer 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 Consumer Staples are associated (or correlated) with IShares Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of IShares Consumer i.e., IShares Consumer and IShares Basic go up and down completely randomly.
Pair Corralation between IShares Consumer and IShares Basic
Considering the 90-day investment horizon IShares Consumer is expected to generate 1.86 times less return on investment than IShares Basic. But when comparing it to its historical volatility, iShares Consumer Staples is 1.45 times less risky than IShares Basic. It trades about 0.04 of its potential returns per unit of risk. iShares Basic Materials is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 12,295 in iShares Basic Materials on August 27, 2024 and sell it today you would earn a total of 2,387 from holding iShares Basic Materials or generate 19.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Consumer Staples vs. iShares Basic Materials
Performance |
| Timeline |
| iShares Consumer Staples |
| iShares Basic Materials |
IShares Consumer and IShares Basic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Consumer and IShares Basic
The main advantage of trading using opposite IShares Consumer and IShares Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Consumer position performs unexpectedly, IShares Basic 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 Basic will offset losses from the drop in IShares Basic's long position.| IShares Consumer vs. Vanguard Consumer Discretionary | IShares Consumer vs. Vanguard Utilities Index | IShares Consumer vs. Vanguard Industrials Index | IShares Consumer vs. Vanguard Materials Index |
| IShares Basic vs. iShares Industrials ETF | IShares Basic vs. iShares Consumer Discretionary | IShares Basic vs. iShares Consumer Staples | IShares Basic vs. iShares Telecommunications 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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