Correlation Between IShares VII and IShares China

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

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

Diversification Opportunities for IShares VII and IShares China

0.08

Correlation Coefficient

IShares VII  IShares China

Significant diversification

The 3 months correlation between IShares and IShares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and iShares China Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China Large and IShares VII 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 VII PLC are associated (or correlated) with IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China Large has no effect on the direction of IShares VII i.e., IShares VII and IShares China go up and down completely randomly.

Pair Corralation between IShares VII and IShares China

Assuming the 90 days trading horizon IShares VII is expected to generate 28.02 times less return on investment than IShares China. But when comparing it to its historical volatility, iShares VII PLC is 4.59 times less risky than IShares China. It trades about 0.02 of its potential returns per unit of risk. iShares China Large is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,298  in iShares China Large on September 13, 2024 and sell it today you would earn a total of  1,532  from holding iShares China Large or generate 20.99% return on investment over 90 days.

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

iShares VII PLC  vs.  iShares China Large

iShares VII PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares VII PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares VII is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

iShares China Large

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares VII and IShares China

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

The idea behind iShares VII PLC and iShares China Large 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.