Correlation Between IShares SLI and IShares SMIM

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

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

Diversification Opportunities for IShares SLI and IShares SMIM

0.93

Correlation Coefficient

IShares SLI  IShares SMIM

Almost no diversification

The 3 months correlation between IShares and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares SLI ETF and iShares SMIM ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SMIM ETF and IShares SLI 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 SLI ETF are associated (or correlated) with IShares SMIM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SMIM ETF has no effect on the direction of IShares SLI i.e., IShares SLI and IShares SMIM go up and down completely randomly.

Pair Corralation between IShares SLI and IShares SMIM

Assuming the 90 days trading horizon iShares SLI ETF is expected to under-perform the IShares SMIM. In addition to that, IShares SLI is 1.07 times more volatile than iShares SMIM ETF. It trades about -0.02 of its total potential returns per unit of risk. iShares SMIM ETF is currently generating about 0.0 per unit of volatility. If you would invest  27,615  in iShares SMIM ETF on September 16, 2024 and sell it today you would earn a total of  10.00  from holding iShares SMIM ETF or generate 0.04% return on investment over 90 days.

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

iShares SLI ETF  vs.  iShares SMIM ETF

iShares SLI ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SLI ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares SLI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares SMIM ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SMIM ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares SMIM is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares SLI and IShares SMIM

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

The idea behind iShares SLI ETF and iShares SMIM ETF 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.