Correlation Between STRAX and BLK
Can any of the company-specific risk be diversified away by investing in both STRAX and BLK 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 STRAX and BLK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STRAX and BLK, you can compare the effects of market volatilities on STRAX and BLK 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 STRAX with a short position of BLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of STRAX and BLK.
Diversification Opportunities for STRAX and BLK
Poor diversification
The 3 months correlation between STRAX and BLK is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding STRAX and BLK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLK and STRAX 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 STRAX are associated (or correlated) with BLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BLK has no effect on the direction of STRAX i.e., STRAX and BLK go up and down completely randomly.
Pair Corralation between STRAX and BLK
Assuming the 90 days trading horizon STRAX is expected to under-perform the BLK. In addition to that, STRAX is 1.49 times more volatile than BLK. It trades about -0.02 of its total potential returns per unit of risk. BLK is currently generating about 0.1 per unit of volatility. If you would invest 2.06 in BLK on August 27, 2024 and sell it today you would earn a total of 0.87 from holding BLK or generate 42.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
STRAX vs. BLK
Performance |
| Timeline |
| STRAX |
| BLK |
STRAX and BLK Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STRAX and BLK
The main advantage of trading using opposite STRAX and BLK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STRAX position performs unexpectedly, BLK 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 BLK will offset losses from the drop in BLK's long position.The idea behind STRAX and BLK 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.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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