Correlation Between IShares Fundamental and IShares Convertible

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

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

Diversification Opportunities for IShares Fundamental and IShares Convertible

0.63

Correlation Coefficient

IShares Fundamental  IShares Convertible

Poor diversification

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

Pair Corralation between IShares Fundamental and IShares Convertible

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to generate 1.44 times more return on investment than IShares Convertible. However, IShares Fundamental is 1.44 times more volatile than iShares Convertible Bond. It trades about 0.18 of its potential returns per unit of risk. iShares Convertible Bond is currently generating about 0.06 per unit of risk. If you would invest  5,321  in iShares Fundamental Hedged on September 3, 2024 and sell it today you would earn a total of  424.00  from holding iShares Fundamental Hedged or generate 7.97% return on investment over 90 days.

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

iShares Fundamental Hedged  vs.  iShares Convertible Bond

iShares Fundamental

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Fundamental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Convertible Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Convertible Bond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares Convertible is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Fundamental and IShares Convertible

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

The idea behind iShares Fundamental Hedged and iShares Convertible Bond 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.