Correlation Between IShares Yield and FlexShares Core

Can any of the company-specific risk be diversified away by investing in both IShares Yield 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 Yield 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 Yield Optimized and FlexShares Core Select, you can compare the effects of market volatilities on IShares Yield 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 Yield with a short position of FlexShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Yield and FlexShares Core.

Diversification Opportunities for IShares Yield and FlexShares Core

0.79

Correlation Coefficient

IShares Yield  FlexShares Core

Poor diversification

The 3 months correlation between IShares and FlexShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding iShares Yield Optimized 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 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 iShares Yield Optimized 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 Yield i.e., IShares Yield and FlexShares Core go up and down completely randomly.

Pair Corralation between IShares Yield and FlexShares Core

Given the investment horizon of 90 days iShares Yield Optimized is expected to generate 0.75 times more return on investment than FlexShares Core. However, iShares Yield Optimized is 1.34 times less risky than FlexShares Core. It trades about 0.04 of its potential returns per unit of risk. FlexShares Core Select is currently generating about -0.11 per unit of risk. If you would invest  2,248  in iShares Yield Optimized on September 12, 2024 and sell it today you would earn a total of  11.30  from holding iShares Yield Optimized or generate 0.5% return on investment over 90 days.

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

iShares Yield Optimized  vs.  FlexShares Core Select

iShares Yield Optimized

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Yield Optimized are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares Yield is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

FlexShares Core Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Core Select has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Yield and FlexShares Core

The main advantage of trading using opposite IShares Yield and FlexShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Yield 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 Yield Optimized 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.