Correlation Between IShares Core and Litman Gregory

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

By analyzing existing cross correlation between iShares Core Dividend and Litman Gregory Funds, you can compare the effects of market volatilities on IShares Core and Litman Gregory 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 Litman Gregory. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Litman Gregory.

Diversification Opportunities for IShares Core and Litman Gregory

0.94

Correlation Coefficient

IShares Core  Litman Gregory

Almost no diversification

The 3 months correlation between IShares and Litman is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Dividend and Litman Gregory Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Funds 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 Dividend are associated (or correlated) with Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Funds has no effect on the direction of IShares Core i.e., IShares Core and Litman Gregory go up and down completely randomly.

Pair Corralation between IShares Core and Litman Gregory

Given the investment horizon of 90 days IShares Core is expected to generate 3.52 times less return on investment than Litman Gregory. But when comparing it to its historical volatility, iShares Core Dividend is 1.05 times less risky than Litman Gregory. It trades about 0.01 of its potential returns per unit of risk. Litman Gregory Funds is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,142  in Litman Gregory Funds on December 29, 2024 and sell it today you would earn a total of  19.00  from holding Litman Gregory Funds or generate 1.66% return on investment over 90 days.

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

iShares Core Dividend  vs.  Litman Gregory Funds

iShares Core Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Litman Gregory Funds

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Funds are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Core and Litman Gregory

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

The idea behind iShares Core Dividend and Litman Gregory Funds 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..