Correlation Between IShares Transportation and IShares Industrials
Can any of the company-specific risk be diversified away by investing in both IShares Transportation and IShares Industrials 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 Transportation and IShares Industrials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Transportation Average and iShares Industrials ETF, you can compare the effects of market volatilities on IShares Transportation and IShares Industrials 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 Transportation with a short position of IShares Industrials. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Transportation and IShares Industrials.
Diversification Opportunities for IShares Transportation and IShares Industrials
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and iShares Industrials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Industrials ETF and IShares Transportation 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 Transportation Average are associated (or correlated) with IShares Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Industrials ETF has no effect on the direction of IShares Transportation i.e., IShares Transportation and IShares Industrials go up and down completely randomly.
Pair Corralation between IShares Transportation and IShares Industrials
Considering the 90-day investment horizon iShares Transportation Average is expected to under-perform the IShares Industrials. In addition to that, IShares Transportation is 1.51 times more volatile than iShares Industrials ETF. It trades about -0.19 of its total potential returns per unit of risk. iShares Industrials ETF is currently generating about -0.19 per unit of volatility. If you would invest 13,994 in iShares Industrials ETF on November 29, 2024 and sell it today you would lose (440.00) from holding iShares Industrials ETF or give up 3.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Transportation Average vs. iShares Industrials ETF
Performance |
| Timeline |
| iShares Transportation |
| iShares Industrials ETF |
IShares Transportation and IShares Industrials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Transportation and IShares Industrials
The main advantage of trading using opposite IShares Transportation and IShares Industrials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation position performs unexpectedly, IShares Industrials 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 Industrials will offset losses from the drop in IShares Industrials' long position.The idea behind iShares Transportation Average and iShares Industrials ETF 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.
| IShares Industrials vs. iShares Consumer Discretionary | IShares Industrials vs. iShares Consumer Staples | IShares Industrials vs. iShares Basic Materials | IShares Industrials vs. iShares Utilities 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 Valuation module to check real value of public entities based on technical and fundamental data.
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