Correlation Between IShares Trust and Freeport McMoRan

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

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

Diversification Opportunities for IShares Trust and Freeport McMoRan

0.09

Correlation Coefficient

IShares Trust  Freeport McMoRan

Significant diversification

The 3 months correlation between IShares and Freeport is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of IShares Trust i.e., IShares Trust and Freeport McMoRan go up and down completely randomly.

Pair Corralation between IShares Trust and Freeport McMoRan

Assuming the 90 days trading horizon IShares Trust is expected to generate 1.39 times less return on investment than Freeport McMoRan. But when comparing it to its historical volatility, iShares Trust is 2.15 times less risky than Freeport McMoRan. It trades about 0.09 of its potential returns per unit of risk. Freeport McMoRan is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  81,976  in Freeport McMoRan on September 3, 2024 and sell it today you would earn a total of  5,524  from holding Freeport McMoRan or generate 6.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

iShares Trust   vs.  Freeport McMoRan

iShares Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Freeport McMoRan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Freeport McMoRan are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Freeport McMoRan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Trust and Freeport McMoRan

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

The idea behind iShares Trust and Freeport McMoRan 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.