Correlation Between IShares Telecommunicatio and IShares Consumer

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Can any of the company-specific risk be diversified away by investing in both IShares Telecommunicatio and IShares Consumer 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 Telecommunicatio and IShares Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Telecommunications ETF and iShares Consumer Discretionary, you can compare the effects of market volatilities on IShares Telecommunicatio and IShares Consumer 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 Telecommunicatio with a short position of IShares Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Telecommunicatio and IShares Consumer.

Diversification Opportunities for IShares Telecommunicatio and IShares Consumer

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between IShares and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares Telecommunications ETF and iShares Consumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Dis and IShares Telecommunicatio 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 Telecommunications ETF are associated (or correlated) with IShares Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Dis has no effect on the direction of IShares Telecommunicatio i.e., IShares Telecommunicatio and IShares Consumer go up and down completely randomly.

Pair Corralation between IShares Telecommunicatio and IShares Consumer

Considering the 90-day investment horizon IShares Telecommunicatio is expected to generate 2.68 times less return on investment than IShares Consumer. In addition to that, IShares Telecommunicatio is 1.44 times more volatile than iShares Consumer Discretionary. It trades about 0.09 of its total potential returns per unit of risk. iShares Consumer Discretionary is currently generating about 0.34 per unit of volatility. If you would invest  9,549  in iShares Consumer Discretionary on November 3, 2024 and sell it today you would earn a total of  508.00  from holding iShares Consumer Discretionary or generate 5.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

iShares Telecommunications ETF  vs.  iShares Consumer Discretionary

 Performance 
       Timeline  
IShares Telecommunicatio 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Telecommunications ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, IShares Telecommunicatio may actually be approaching a critical reversion point that can send shares even higher in March 2025.
iShares Consumer Dis 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Discretionary are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, IShares Consumer exhibited solid returns over the last few months and may actually be approaching a breakup point.

IShares Telecommunicatio and IShares Consumer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Telecommunicatio and IShares Consumer

The main advantage of trading using opposite IShares Telecommunicatio and IShares Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Telecommunicatio position performs unexpectedly, IShares Consumer 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 Consumer will offset losses from the drop in IShares Consumer's long position.
The idea behind iShares Telecommunications ETF and iShares Consumer Discretionary 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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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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