Correlation Between IShares Fundamental and Western Investment

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

Diversification Opportunities for IShares Fundamental and Western Investment

0.66

Correlation Coefficient

IShares Fundamental  Western Investment

Poor diversification

The 3 months correlation between IShares and Western is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment 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 Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and Western Investment go up and down completely randomly.

Pair Corralation between IShares Fundamental and Western Investment

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to generate 0.27 times more return on investment than Western Investment. However, iShares Fundamental Hedged is 3.66 times less risky than Western Investment. It trades about -0.01 of its potential returns per unit of risk. Western Investment is currently generating about -0.01 per unit of risk. If you would invest  5,380  in iShares Fundamental Hedged on December 30, 2024 and sell it today you would lose (39.00) from holding iShares Fundamental Hedged or give up 0.72% of portfolio value over 90 days.

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

iShares Fundamental Hedged  vs.  Western Investment

iShares Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Fundamental Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Western Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Western Investment is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Fundamental and Western Investment

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

The idea behind iShares Fundamental Hedged and Western Investment 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.