Correlation Between AMS Small and IShares Core

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

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

Diversification Opportunities for AMS Small and IShares Core

-0.63

Correlation Coefficient

AMS Small  IShares Core

Excellent diversification

The 3 months correlation between AMS and IShares is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI and AMS Small 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 AMS Small Cap are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of AMS Small i.e., AMS Small and IShares Core go up and down completely randomly.

Pair Corralation between AMS Small and IShares Core

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 1.06 times more return on investment than IShares Core. However, AMS Small is 1.06 times more volatile than iShares Core MSCI. It trades about 0.19 of its potential returns per unit of risk. iShares Core MSCI is currently generating about -0.06 per unit of risk. If you would invest  124,534  in AMS Small Cap on December 28, 2024 and sell it today you would earn a total of  14,695  from holding AMS Small Cap or generate 11.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

AMS Small Cap  vs.  iShares Core MSCI

Pair Trading with AMS Small and IShares Core

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

The idea behind AMS Small Cap and iShares Core MSCI 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.