Correlation Between IShares Core and FlexShares Core

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

By analyzing existing cross correlation between iShares Core Aggregate and FlexShares Core Select, you can compare the effects of market volatilities on IShares Core and FlexShares Core 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 Core with a short position of FlexShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and FlexShares Core.

Diversification Opportunities for IShares Core and FlexShares Core

1.0

Correlation Coefficient

IShares Core  FlexShares Core

No risk reduction

The 3 months correlation between IShares and FlexShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Aggregate and FlexShares Core Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Core Select and IShares Core 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 Core Aggregate are associated (or correlated) with FlexShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Core Select has no effect on the direction of IShares Core i.e., IShares Core and FlexShares Core go up and down completely randomly.

Pair Corralation between IShares Core and FlexShares Core

Considering the 90-day investment horizon IShares Core is expected to generate 1.02 times less return on investment than FlexShares Core. But when comparing it to its historical volatility, iShares Core Aggregate is 1.04 times less risky than FlexShares Core. It trades about 0.13 of its potential returns per unit of risk. FlexShares Core Select is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,164  in FlexShares Core Select on December 29, 2024 and sell it today you would earn a total of  53.00  from holding FlexShares Core Select or generate 2.45% return on investment over 90 days.

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

iShares Core Aggregate  vs.  FlexShares Core Select

iShares Core Aggregate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Aggregate are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

FlexShares Core Select

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Core Select are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, FlexShares Core is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and FlexShares Core

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

The idea behind iShares Core Aggregate and FlexShares Core Select 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.