Correlation Between IShares Core and Lyxor Japan

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

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

Diversification Opportunities for IShares Core and Lyxor Japan

0.49

Correlation Coefficient

IShares Core  Lyxor Japan

Very weak diversification

The 3 months correlation between IShares and Lyxor is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Lyxor Japan UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Japan UCITS and IShares Core 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 Core SP are associated (or correlated) with Lyxor Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Japan UCITS has no effect on the direction of IShares Core i.e., IShares Core and Lyxor Japan go up and down completely randomly.

Pair Corralation between IShares Core and Lyxor Japan

Assuming the 90 days trading horizon iShares Core SP is expected to generate 0.61 times more return on investment than Lyxor Japan. However, iShares Core SP is 1.63 times less risky than Lyxor Japan. It trades about 0.16 of its potential returns per unit of risk. Lyxor Japan UCITS is currently generating about 0.04 per unit of risk. If you would invest  47,450  in iShares Core SP on September 15, 2024 and sell it today you would earn a total of  16,750  from holding iShares Core SP or generate 35.3% return on investment over 90 days.

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

iShares Core SP  vs.  Lyxor Japan UCITS

iShares Core SP

Risk-Adjusted Performance

15 of 100

Good

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

Lyxor Japan UCITS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Japan UCITS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lyxor Japan is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Core and Lyxor Japan

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

The idea behind iShares Core SP and Lyxor Japan UCITS 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.