Correlation Between High Yield and IShares Emergent

Can any of the company-specific risk be diversified away by investing in both High Yield and IShares Emergent 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 High Yield and IShares Emergent into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between High Yield Municipal Fund and iShares Emergent Food, you can compare the effects of market volatilities on High Yield and IShares Emergent 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 High Yield with a short position of IShares Emergent. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and IShares Emergent.

Diversification Opportunities for High Yield and IShares Emergent

0.46

Correlation Coefficient

High Yield  IShares Emergent

Very weak diversification

The 3 months correlation between High and IShares is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and iShares Emergent Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Emergent Food and High Yield 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 High Yield Municipal Fund are associated (or correlated) with IShares Emergent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Emergent Food has no effect on the direction of High Yield i.e., High Yield and IShares Emergent go up and down completely randomly.

Pair Corralation between High Yield and IShares Emergent

Assuming the 90 days horizon High Yield is expected to generate 1.53 times less return on investment than IShares Emergent. But when comparing it to its historical volatility, High Yield Municipal Fund is 3.44 times less risky than IShares Emergent. It trades about 0.06 of its potential returns per unit of risk. iShares Emergent Food is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,900  in iShares Emergent Food on September 21, 2024 and sell it today you would earn a total of  48.00  from holding iShares Emergent Food or generate 2.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

High Yield Municipal Fund  vs.  iShares Emergent Food

High Yield Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Emergent Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Emergent Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Emergent is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with High Yield and IShares Emergent

The main advantage of trading using opposite High Yield and IShares Emergent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, IShares Emergent 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 Emergent will offset losses from the drop in IShares Emergent's long position.

The idea behind High Yield Municipal Fund and iShares Emergent Food 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.