Correlation Between Materials Select and IShares Global
Can any of the company-specific risk be diversified away by investing in both Materials Select and IShares Global 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 Materials Select and IShares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Select Sector and iShares Global Materials, you can compare the effects of market volatilities on Materials Select and IShares Global 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 Materials Select with a short position of IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and IShares Global.
Diversification Opportunities for Materials Select and IShares Global
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Materials and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares Global Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Materials and Materials Select 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 Materials Select Sector are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Materials has no effect on the direction of Materials Select i.e., Materials Select and IShares Global go up and down completely randomly.
Pair Corralation between Materials Select and IShares Global
Considering the 90-day investment horizon Materials Select Sector is expected to generate 0.89 times more return on investment than IShares Global. However, Materials Select Sector is 1.12 times less risky than IShares Global. It trades about -0.02 of its potential returns per unit of risk. iShares Global Materials is currently generating about -0.16 per unit of risk. If you would invest 9,464 in Materials Select Sector on August 31, 2024 and sell it today you would lose (34.00) from holding Materials Select Sector or give up 0.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Materials Select Sector vs. iShares Global Materials
Performance |
| Timeline |
| Materials Select Sector |
| iShares Global Materials |
Materials Select and IShares Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Select and IShares Global
The main advantage of trading using opposite Materials Select and IShares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select position performs unexpectedly, IShares Global 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 Global will offset losses from the drop in IShares Global's long position.| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities Select Sector |
| IShares Global vs. iShares Global Industrials | IShares Global vs. iShares Global Utilities | IShares Global vs. iShares Global Consumer | IShares Global vs. iShares Global Consumer |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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