Correlation Between IShares Fundamental and Defense Metals

Can any of the company-specific risk be diversified away by investing in both IShares Fundamental and Defense Metals 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 Defense Metals 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 Defense Metals Corp, you can compare the effects of market volatilities on IShares Fundamental and Defense Metals 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 Defense Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Fundamental and Defense Metals.

Diversification Opportunities for IShares Fundamental and Defense Metals

-0.1

Correlation Coefficient

IShares Fundamental  Defense Metals

Good diversification

The 3 months correlation between IShares and Defense is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp 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 Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and Defense Metals go up and down completely randomly.

Pair Corralation between IShares Fundamental and Defense Metals

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to under-perform the Defense Metals. But the etf apears to be less risky and, when comparing its historical volatility, iShares Fundamental Hedged is 13.08 times less risky than Defense Metals. The etf trades about -0.3 of its potential returns per unit of risk. The Defense Metals Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Defense Metals Corp on September 25, 2024 and sell it today you would earn a total of  6.00  from holding Defense Metals Corp or generate 60.0% return on investment over 90 days.

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

iShares Fundamental Hedged  vs.  Defense Metals Corp

iShares Fundamental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Fundamental is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Defense Metals Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Fundamental and Defense Metals

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

The idea behind iShares Fundamental Hedged and Defense Metals Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.