Correlation Between Consumer Discretionary and IShares Consumer
Can any of the company-specific risk be diversified away by investing in both Consumer Discretionary 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 Consumer Discretionary and IShares Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Discretionary Select and iShares Consumer Staples, you can compare the effects of market volatilities on Consumer Discretionary 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 Consumer Discretionary with a short position of IShares Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and IShares Consumer.
Diversification Opportunities for Consumer Discretionary and IShares Consumer
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Consumer and IShares is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and iShares Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Staples and Consumer Discretionary 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 Consumer Discretionary Select 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 Staples has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and IShares Consumer go up and down completely randomly.
Pair Corralation between Consumer Discretionary and IShares Consumer
Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 1.83 times more return on investment than IShares Consumer. However, Consumer Discretionary is 1.83 times more volatile than iShares Consumer Staples. It trades about 0.09 of its potential returns per unit of risk. iShares Consumer Staples is currently generating about 0.03 per unit of risk. If you would invest 13,732 in Consumer Discretionary Select on September 2, 2024 and sell it today you would earn a total of 8,498 from holding Consumer Discretionary Select or generate 61.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Discretionary Select vs. iShares Consumer Staples
Performance |
| Timeline |
| Consumer Discretionary |
| iShares Consumer Staples |
Consumer Discretionary and IShares Consumer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Discretionary and IShares Consumer
The main advantage of trading using opposite Consumer Discretionary and IShares Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary 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.| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary vs. Health Care Select |
| IShares Consumer vs. iShares Consumer Discretionary | IShares Consumer vs. iShares Industrials ETF | IShares Consumer vs. iShares Utilities ETF | IShares Consumer vs. iShares Basic Materials |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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