Correlation Between IShares Broad and Freedom Day
Can any of the company-specific risk be diversified away by investing in both IShares Broad and Freedom Day 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 Broad and Freedom Day into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Broad USD and Freedom Day Dividend, you can compare the effects of market volatilities on IShares Broad and Freedom Day 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 Broad with a short position of Freedom Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Broad and Freedom Day.
Diversification Opportunities for IShares Broad and Freedom Day
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Freedom is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and Freedom Day Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Day Dividend and IShares Broad 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 Broad USD are associated (or correlated) with Freedom Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Day Dividend has no effect on the direction of IShares Broad i.e., IShares Broad and Freedom Day go up and down completely randomly.
Pair Corralation between IShares Broad and Freedom Day
Given the investment horizon of 90 days IShares Broad is expected to generate 1.86 times less return on investment than Freedom Day. But when comparing it to its historical volatility, iShares Broad USD is 1.95 times less risky than Freedom Day. It trades about 0.19 of its potential returns per unit of risk. Freedom Day Dividend is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 3,280 in Freedom Day Dividend on November 30, 2024 and sell it today you would earn a total of 153.62 from holding Freedom Day Dividend or generate 4.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Broad USD vs. Freedom Day Dividend
Performance |
| Timeline |
| iShares Broad USD |
| Freedom Day Dividend |
IShares Broad and Freedom Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Broad and Freedom Day
The main advantage of trading using opposite IShares Broad and Freedom Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Broad position performs unexpectedly, Freedom Day 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 Freedom Day will offset losses from the drop in Freedom Day's long position.| IShares Broad vs. iShares 5 10 Year | IShares Broad vs. iShares Broad USD | IShares Broad vs. iShares 1 5 Year | IShares Broad vs. iShares 0 5 Year |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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