Correlation Between IShares Transportation and Industrial Select
Can any of the company-specific risk be diversified away by investing in both IShares Transportation and Industrial Select 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 Industrial Select 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 Industrial Select Sector, you can compare the effects of market volatilities on IShares Transportation and Industrial Select 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 Industrial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Transportation and Industrial Select.
Diversification Opportunities for IShares Transportation and Industrial Select
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Industrial is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector 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 Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of IShares Transportation i.e., IShares Transportation and Industrial Select go up and down completely randomly.
Pair Corralation between IShares Transportation and Industrial Select
Considering the 90-day investment horizon iShares Transportation Average is expected to generate 1.37 times more return on investment than Industrial Select. However, IShares Transportation is 1.37 times more volatile than Industrial Select Sector. It trades about 0.14 of its potential returns per unit of risk. Industrial Select Sector is currently generating about 0.16 per unit of risk. If you would invest 6,824 in iShares Transportation Average on August 26, 2024 and sell it today you would earn a total of 534.00 from holding iShares Transportation Average or generate 7.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Transportation Average vs. Industrial Select Sector
Performance |
| Timeline |
| iShares Transportation |
| Industrial Select Sector |
IShares Transportation and Industrial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Transportation and Industrial Select
The main advantage of trading using opposite IShares Transportation and Industrial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation position performs unexpectedly, Industrial Select 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 Industrial Select will offset losses from the drop in Industrial Select's long position.The idea behind iShares Transportation Average and Industrial Select Sector 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.
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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