Correlation Between IShares Trust and WSDMTR ERNGS

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

By analyzing existing cross correlation between iShares Trust and WSDMTR ERNGS 500, you can compare the effects of market volatilities on IShares Trust and WSDMTR ERNGS 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 Trust with a short position of WSDMTR ERNGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and WSDMTR ERNGS.

Diversification Opportunities for IShares Trust and WSDMTR ERNGS

0.46

Correlation Coefficient

IShares Trust  WSDMTR ERNGS

Very weak diversification

The 3 months correlation between IShares and WSDMTR is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and WSDMTR ERNGS 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WSDMTR ERNGS 500 and IShares Trust 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 Trust are associated (or correlated) with WSDMTR ERNGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WSDMTR ERNGS 500 has no effect on the direction of IShares Trust i.e., IShares Trust and WSDMTR ERNGS go up and down completely randomly.

Pair Corralation between IShares Trust and WSDMTR ERNGS

Assuming the 90 days trading horizon iShares Trust is expected to generate 1.53 times more return on investment than WSDMTR ERNGS. However, IShares Trust is 1.53 times more volatile than WSDMTR ERNGS 500. It trades about -0.09 of its potential returns per unit of risk. WSDMTR ERNGS 500 is currently generating about -0.18 per unit of risk. If you would invest  183,684  in iShares Trust on September 23, 2024 and sell it today you would lose (3,584) from holding iShares Trust or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

iShares Trust   vs.  WSDMTR ERNGS 500

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

WSDMTR ERNGS 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WSDMTR ERNGS 500 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, WSDMTR ERNGS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Trust and WSDMTR ERNGS

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

The idea behind iShares Trust and WSDMTR ERNGS 500 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.