Correlation Between IShares Basic and IShares Financials
Can any of the company-specific risk be diversified away by investing in both IShares Basic and IShares Financials 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 Basic and IShares Financials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Basic Materials and iShares Financials ETF, you can compare the effects of market volatilities on IShares Basic and IShares Financials 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 Basic with a short position of IShares Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Basic and IShares Financials.
Diversification Opportunities for IShares Basic and IShares Financials
0.23 | Correlation Coefficient |
Modest 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 Basic Materials and iShares Financials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financials ETF and IShares Basic 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 Basic Materials are associated (or correlated) with IShares Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financials ETF has no effect on the direction of IShares Basic i.e., IShares Basic and IShares Financials go up and down completely randomly.
Pair Corralation between IShares Basic and IShares Financials
Considering the 90-day investment horizon iShares Basic Materials is expected to under-perform the IShares Financials. But the etf apears to be less risky and, when comparing its historical volatility, iShares Basic Materials is 1.99 times less risky than IShares Financials. The etf trades about -0.05 of its potential returns per unit of risk. The iShares Financials ETF is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 10,860 in iShares Financials ETF on August 27, 2024 and sell it today you would earn a total of 1,001 from holding iShares Financials ETF or generate 9.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Basic Materials vs. iShares Financials ETF
Performance |
| Timeline |
| iShares Basic Materials |
| iShares Financials ETF |
IShares Basic and IShares Financials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Basic and IShares Financials
The main advantage of trading using opposite IShares Basic and IShares Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Basic position performs unexpectedly, IShares Financials 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 Financials will offset losses from the drop in IShares Financials' long position.| IShares Basic vs. iShares Industrials ETF | IShares Basic vs. iShares Consumer Discretionary | IShares Basic vs. iShares Consumer Staples | IShares Basic vs. iShares Telecommunications ETF |
| IShares Financials vs. iShares Financial Services | IShares Financials vs. iShares Industrials ETF | IShares Financials vs. iShares Consumer Discretionary | IShares Financials 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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