Correlation Between IShares Fundamental and PHX Energy

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

Diversification Opportunities for IShares Fundamental and PHX Energy

0.53

Correlation Coefficient

IShares Fundamental  PHX Energy

Very weak diversification

The 3 months correlation between IShares and PHX is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services 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 PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and PHX Energy go up and down completely randomly.

Pair Corralation between IShares Fundamental and PHX Energy

Assuming the 90 days trading horizon IShares Fundamental is expected to generate 1.25 times less return on investment than PHX Energy. But when comparing it to its historical volatility, iShares Fundamental Hedged is 2.8 times less risky than PHX Energy. It trades about 0.14 of its potential returns per unit of risk. PHX Energy Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  897.00  in PHX Energy Services on September 13, 2024 and sell it today you would earn a total of  55.00  from holding PHX Energy Services or generate 6.13% return on investment over 90 days.

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

iShares Fundamental Hedged  vs.  PHX Energy Services

iShares Fundamental

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 10 (%) 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.

PHX Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PHX Energy Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, PHX Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Fundamental and PHX Energy

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

The idea behind iShares Fundamental Hedged and PHX Energy Services 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.