Correlation Between IShares SMI and IShares SMIM

Can any of the company-specific risk be diversified away by investing in both IShares SMI 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 SMI 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 SMI ETF and iShares SMIM ETF, you can compare the effects of market volatilities on IShares SMI 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 SMI with a short position of IShares SMIM. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SMI and IShares SMIM.

Diversification Opportunities for IShares SMI and IShares SMIM

0.77

Correlation Coefficient

IShares SMI  IShares SMIM

Poor diversification

The 3 months correlation between IShares and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares SMI 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 SMI 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 SMI 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 SMI i.e., IShares SMI and IShares SMIM go up and down completely randomly.

Pair Corralation between IShares SMI and IShares SMIM

Assuming the 90 days trading horizon iShares SMI ETF is expected to generate 1.19 times more return on investment than IShares SMIM. However, IShares SMI is 1.19 times more volatile than iShares SMIM ETF. It trades about 0.24 of its potential returns per unit of risk. iShares SMIM ETF is currently generating about 0.19 per unit of risk. If you would invest  12,214  in iShares SMI ETF on December 5, 2024 and sell it today you would earn a total of  1,262  from holding iShares SMI ETF or generate 10.33% return on investment over 90 days.

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

iShares SMI ETF  vs.  iShares SMIM ETF

iShares SMI ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SMI ETF are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, IShares SMI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares SMIM ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SMIM ETF are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, IShares SMIM may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares SMI and IShares SMIM

The main advantage of trading using opposite IShares SMI and IShares SMIM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SMI 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 SMI 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.