Correlation Between VanEck Biotech and IShares Biotechnology

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

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

Diversification Opportunities for VanEck Biotech and IShares Biotechnology

0.93

Correlation Coefficient

VanEck Biotech  IShares Biotechnology

Almost no diversification

The 3 months correlation between VanEck and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Biotech ETF and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF and VanEck Biotech 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 VanEck Biotech ETF are associated (or correlated) with IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of VanEck Biotech i.e., VanEck Biotech and IShares Biotechnology go up and down completely randomly.

Pair Corralation between VanEck Biotech and IShares Biotechnology

Considering the 90-day investment horizon VanEck Biotech ETF is expected to generate 0.91 times more return on investment than IShares Biotechnology. However, VanEck Biotech ETF is 1.1 times less risky than IShares Biotechnology. It trades about -0.21 of its potential returns per unit of risk. iShares Biotechnology ETF is currently generating about -0.25 per unit of risk. If you would invest  16,571  in VanEck Biotech ETF on September 28, 2024 and sell it today you would lose (747.00) from holding VanEck Biotech ETF or give up 4.51% of portfolio value over 90 days.

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

VanEck Biotech ETF  vs.  iShares Biotechnology ETF

VanEck Biotech ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

iShares Biotechnology ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Biotechnology ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with VanEck Biotech and IShares Biotechnology

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

The idea behind VanEck Biotech ETF and iShares Biotechnology ETF 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 Transaction History module to view history of all your transactions and understand their impact on performance.